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Economic Thought

Before Adam Smith

Murray N. Rothbard
To my mentors,
Ludwig von Mises and Joseph Dorfman
Economic Thought
Before Adam Smith
An Austrian Perspective on the
History of Economic Thought
Volume I

Murray N. Rothbard

von Mises
The Ludwig von Mises Institute dedicates this volume to all of its
generous donors and wishes to thank these Patrons, in particular:


Reed W. Mower

Ramallo Pallast Wakefield & Partner;

Douglas French and Deanna Forbush; Hugh E. Ledbetter;
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Andreas Acavalos; William H. Anderson;

Mr. and Mrs. William M. Benton; Richard B. Bleiberg;
John Hamilton Bolstad; Roman J. Bowser;
Mr. and Mrs. Roger H. Box; Mary E. Braum; Carl Creager;
D. Allen and Sandra Dalton; Mr. and Mrs. Jeremy S. Davis;
Mr. and Mrs. Lew Fetterman; Mr. and Mrs. Willard Fischer;
Francisco Garcia Parames; Kevin Griffin;
Dr. and Mrs. Robert Harner; Adam Hogan;
Richard J. Kossmann, M.D.; S. Giovanni Lewis; Jonathan Liem;
Bjorn Lundahl; Mr. and Mrs. William W. Massey, Jr.;
William and Zinta McDonnell; Joseph Edward Paul Melville;
Dr. Dorothy Donnelley Moller; top dog™ ; Michael Robb;
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Mr. and Mrs. Edward Schoppe, Jr.; Mr. and Mrs. Charles R. Sebrell;
Norman K. Singleton; John Skar; Gloria and Robert Stewart;
Joan Thompson; Willi Urbach; James S. Van Pelt; William P. Weidner;
Mr. and Mrs. Walter Woodul III; Dr. Steven Lee Yamshon

Copyright © Edward Elgar Publishing Ltd., 1995

This 2006 edition of Economic Thought Before Adam Smith: An Austrian

Perspective on the History of Economic Thought, Volume I, is published by
arrangement with Edward Elgar Publishing, Ltd.

All rights reserved. No part of this book may be reproduced in any man-
ner whatsoever without written permission except in the case of reprints
in the context of reviews. For information write the Ludwig von Mises
Institute, 518 West Magnolia Avenue, Auburn, Alabama 36832.

ISBN: 0-945466-48-X

Introduction vii
Acknowledgements xv
1. The first philosopher-economists: the Greeks 1
2. The Christian Middle Ages 29
3. From Middle Ages to Renaissance 65
4. The late Spanish scholastics 97
5. Protestants and Catholics 135
6. Absolutist thought in Italy and France 177
7. Mercantilism: serving the absolute state 211
8. French mercantilist thought in the seventeenth century 233
9. The liberal reaction against mercantilism in seventeenth century
France 253
10. Mercantilism and freedom in England from the Tudors to the
Civil War 275
11. Mercantilism and freedom in England from the Civil War to
1750 307
12. The founding father of modern economics: Richard Cantillon 343
13. Physiocracy in mid-eighteenth century France 363
14. The brilliance ofTurgot 383
15. The Scottish Enlightenment 415
16. The celebrated Adam Smith 433
17. The spread of the Smithian movement 475
Bibliographical essay 505
Index 535


As the subtitle declares, this work is an overall history of economic thought

from a frankly 'Austrian' standpoint: that is, from the point of view of an
adherent of the 'Austrian School' of economics. This is the only such work
by a modern Austrian; indeed, only a few monographs in specialized areas of
the history of thought have been published by Austrians in recent decades.!
Not only that: this perspective is grounded in what is currently the least
fashionable though not the least numerous variant of the Austrian School: the
'Misesian' or 'praxeologic'. 2
But the Austrian nature of this work is scarcely its only singularity. When
the present author first began studying economics in the 1940s, there was an
overwhelmingly dominant paradigm in the approach to the history of eco-
nomic thought - one that is still paramount, though not as baldly as in that
era. Essentially, this paradigm features a few Great Men as the essence of the
history of economic thought, with Adam Smith as the almost superhuman
founder. But if Smith was the creator of both economic analysis and of the
free trade, free market tradition in political economy, it would be petty and
niggling to question seriously any aspect of his alleged achievement. Any
sharp criticism of Smith as either economist or free market advocate would
seem only anachronistic: looking down upon the pioneering founder from the
point of view of the superior knowledge of today, puny descendants unfairly
bashing the giants on whose shoulders we stand.
If Adam Smith created economics, much as Athena sprang full-grown and
fully armed from the brow of Zeus, then his predecessors must be foils, little
men of no account. And so short shrift was given, in these classic portrayals
of economic thought, to anyone unlucky enough to precede Smith. Generally
they were grouped into two categories and brusquely dismissed. Immediately
preceding Smith were the mercantilists, whom he strongly criticized. Mer-
cantilists were apparently boobs who kept urging people to accumulate money
but not to spend it, or insisting that the balance of trade must 'balance' with
each country. Scholastics were dismissed even more rudely, as moralistic
medieval ignoramuses who kept warning that the 'just' price must cover a
merchant's cost of production plus a reasonable profit.
The classic works in the history of thought of the 1930s and 1940s then
proceeded to expound and largely to celebrate a few peak figures after Smith.
Ricardo systematized Smith, and dominated economics until the 1870s; then
the 'marginalists', levons, Menger and Walras, marginally corrected Smith-

viii Economic thought before Adam Smith

Ricardo 'classical economics' by stressing the importance of the marginal unit

as compared to whole classes of goods. Then it was on to Alfred Marshall, who
sagely integrated Ricardian cost theory with the supposedly one-sided Aus-
trian-Jevonian emphasis on demand and utility, to create modern neoclassical
economics. Karl Marx could scarcely be ignored, and so he was treated in a
chapter as an aberrant Ricardian. And so the historian could polish off his story
by dealing with four or five Great Figures, each of whom, with the exception of
Marx, contributed more building blocks toward the unbroken progress of eco-
nomic science, essentially a story of ever onward and upward into the light. 3
In the post-World War II years, Keynes of course was added to the Pan-
theon, providing a new culminating chapter in the progress and development
of the science. Keynes, beloved student of the great Marshall, realized that
the old man had left out what would later be called 'macroeconomics' in his
exclusive emphasis on the micro. And so Keynes added macro, concentrating
on the study and explanation of unemployment, a phenomenon which every-
one before Keynes had unaccountably left out of the economic picture, or had
conveniently swept under the rug by blithely 'assuming full employment' .
Since then, the dominant paradigm has been largely sustained, although
matters have recently become rather cloudy. For one thing, this kind of Great
Man ever-upward history requires occasional new final chapters. Keynes's
General Theory, published in 1936, is now almost sixty years old; surely
there must be a Great Man for a final chapter? But who? For a while,
Schumpeter, with his modern and seemingly realistic stress on 'innovation',
had a run, but this trend came a cropper, perhaps on the realization that
Schumpeter's fundamental work (or 'vision', as he himself perceptively put
it) was written more than two decades before the General Theory. The years
since the 1950s have been murky; and it is difficult to force a return to the
once-forgotten Walras into the Procrustean bed of continual progress.
My own view of the grave deficiency of the Few Great Men approach has
been greatly influenced by the work of two splendid historians of thought.
One is my own dissertation mentor Joseph Dorfman, whose unparalleled
multi-volume work on the history of American economic thought demon-
strated conclusively how important allegedly 'lesser' figures are in any move-
ment of ideas. In the first place, the stuff of history is left out by omitting
these figures, and history is therefore falsified by selecting and worrying over
a few scattered texts to constitute The History of Thought. Second, a large
number of the supposedly secondary figures contributed a great deal to the
development of thought, in some ways more than the few peak thinkers.
Hence, important features of economic thought get omitted, and the devel-
oped theory is made paltry and barren as well as lifeless.
Furthermore, the cut-and-thrust of history itself, the context of the ideas
and movements, how people influenced each other, and how they reacted to
Introduction ix

and against one another, is necessarily left out of the Few Great Men ap-
proach. This aspect of the historian's work was particularly brought home to
me by Quentin Skinner's notable two-volume Foundations of Modern Politi-
cal Thought, the significance of which could be appreciated without adopting
Skinner's own behaviourist methodology.4
The continual progress, onward-and-upward approach was demolished for
me, and should have been for everyone, by Thomas Kuhn's famed Structure
of Scientific Revolutions. 5 Kuhn paid no attention to economics, but instead,
in the standard manner of philosophers and historians of science, focused on
such ineluctably 'hard' sciences as physics, chemistry, and astronomy. Bring-
ing the word 'paradigm' into intellectual discourse, Kuhn demolished what I
like to call the 'Whig theory of the history of science'. The Whig theory,
subscribed to by almost all historians of science, including economics, is that
scientific thought progresses patiently, one year after another developing,
sifting, and testing theories, so that science marches onward and upward,
each year, decade or generation learning more and possessing ever more
correct scientific theories. On analogy with the Whig theory of history, coined
in mid-nineteenth century England, which maintained that things are always
getting (and therefore must get) better and better, the Whig historian of
science, seemingly on firmer grounds than the regular Whig historian, im-
plicitly or explicitly asserts that 'later is always better' in any particular
scientific discipline. The Whig historian (whether of science or of history
proper) really maintains that, for any point of historical time, 'whatever was,
was right', or at least better than 'whatever was earlier'. The inevitable result
is a complacent and infuriating Panglossian optimism. In the historiography
of economic thought, the consequence is the firm if implicit position that
every individual economist, or at least every school of economists, contrib-
uted their important mite to the inexorable upward march. There can, then, be
no such thing as gross systemic error that deeply flawed, or even invalidated,
an entire school of economic thought, much less sent the world of economics
permanently astray.
Kuhn, however, shocked the philosophic world by demonstrating that this
is simply not the way that science has developed. Once a central paradigm is
selected, there is no testing or sifting, and tests of basic assumptions only
take place after a series of failures and anomalies in the ruling paradigm has
plunged the science into a 'crisis situation'. One need not adopt Kuhn's
nihilistic philosophic outlook, his implication that no one paradigm is or can
be better than any other, to realize that his less than starry-eyed view of
science rings true both as history and as sociology.
But if the standard romantic or Panglossian view does not work even in the
hard sciences, afortiori it must be totally off the mark in such a 'soft science'
as economics, in a discipline where there can be no laboratory testing, and
x Economic thought before Adam Smith

where numerous even softer disciplines such as politics, religion, and ethics
necessarily impinge on one's economic outlook.
There can therefore be no presumption whatever in economics that later
thought is better than earlier, or even that all well-known economists have
contributed their sturdy mite to the developing discipline. For it becomes
very likely that, rather than everyone contributing to an ever-progressing
edifice, economics can and has proceeded in contentious, even zig-zag fash-
ion, with later systemic fallacy sometimes elbowing aside earlier but sounder
paradigms, thereby redirecting economic thought down a total erroneous or
even tragic path. The overall path of economics may be up, or it may be
down, over any give time period.
In recent years, economics, under the dominant influence of formalism,
positivism and econometrics, and preening itself on being a hard science, has
displayed little interest in its own past. It has been intent, as in any 'real'
science, on the latest textbook or journal article rather than on exploring its
own history. After all, do contemporary physicists spend much time poring
over eighteenth century optics?
In the last decade or two, however, the reigning Walrasian-Keynesian
neoclassical formalist paradigm has been called ever more into question, and
a veritable Kuhnian 'crisis situation' has developed in various areas of eco-
nomics, including worry over its methodology. Amidst this situation, the
study of the history of thought has made a significant comeback, one which
we hope and expect will expand in coming years. 6 For if knowledge buried in
paradigms lost can disappear and be forgotten over time, then studying older
economists and schools of thought need not be done merely for antiquarian
purposes or to examine how intellectual life proceeded in the past. Earlier
economists can be studied for their important contributions to forgotten and
therefore new knowledge today. Valuable truths can be learned about the
content of economics, not only from the latest journals, but from the texts of
long-deceased economic thinkers.
But these are merely methodological generalizations. The concrete realiza-
tion that important economic knowledge had been lost over time came to me
from absorbing the great revision of the scholastics that developed in the
1950s and 1960s. The pioneering revision came dramatically in Schumpeter's
great History of Economic Analysis, and was developed in the works of
Raymond de Roover, Marjorie Grice-Hutchinson and John T. Noonan. It
turns out that the scholastics were not simply 'medieval', but began in the
thirteenth century and expanded and flourished through the sixteenth and into
the seventeenth century. Far from being cost-of-production moralists, the
scholastics believed that the just price was whatever price was established on
the 'common,estimate' of the free market. Not only that: far from being naive
labour or cost-of-production value theorists, the scholastics may be consid-
Introduction xi

ered 'proto-Austrians', with a sophisticated subjective utility theory of value

and price. Furthermore, some of the scholastics were far superior to current
formalist microeconomics in developing a 'proto-Austrian' dynamic theory
of entrepreneurship. Moreover, in 'macro', the scholastics, beginning with
Buridan and culminating in the sixteenth century Spanish scholastics, worked
out an 'Austrian' rather than monetarist supply and demand theory of money
and prices, including interregional money flows, and even a purchasing-
power parity theory of exchange rates.
It seems to be no accident that this dramatic revision of our knowledge of
the scholastics was brought to American economists, not generally esteemed
for their depth of knowledge of Latin, by European-trained economists steeped
in Latin, the language in which the scholastics wrote. This simple point
emphasizes another reason for loss of knowledge in the modern world: the
insularity in one's own language (particularly severe in the English-speaking
countries) that has, since the Reformation, ruptured the once Europe-wide
community of scholars. One reason why continental economic thought has
often exerted minimal, or at least delayed, influence in England and the
United States is simply because these works had not been translated into
English. 7
For me, the impact of scholastic revisionism was complemented and
strengthened by the work, during the same decades, of the German-born
'Austrian' historian, Emil Kauder. Kauder revealed that the dominant eco-
nomic thought in France and Italy during the seventeenth and especially the
eighteenth centuries was also 'proto-Austrian', emphasizing subjective utility
and relative scarcity as the determinants of value. From this groundwork,
Kauder proceeded to a startling insight into the role of Adam Smith that,
however, follows directly from his own work and that of the scholastic
revisionists: that Smith, far from being the founder of economics, was virtu-
ally the reverse. On the contrary, Smith actually took the sound, and almost
fully developed, proto-Austrian subjective value tradition, and tragically
shunted economics on to a false path, a dead end from which the Austrians
had to rescue economics a century later. Instead of subjective value, entrepre-
neurship, and emphasis on real market pricing and market activity, Smith
dropped all this and replaced it with a labour theory of value and a dominant
focus on the unchanging long-run 'natural price' equilibrium, a world where
entrepreneurship was assumed out of existence. Under Ricardo, this unfortu-
nate shift in focus was intensified and systematized.
If Smith was not the creator of economic theory, neither was he the founder
of laissez-faire in political economy. Not only were the scholastics analysts
of, and believers in, the free market and critics of government intervention;
but the French and Italian economists of the eighteenth century were even
more laissez-faire-oriented than Smith, who introduced numerous waffles
xii Economic thought before Adam Smith

and qualifications into what had been, in the hands of Turgot and others, an
almost pure championing of laissez-faire. It turns out that, rather than some-
one who should be venerated as creator of modern economics or of laissez-
faire, Smith was closer to the picture portrayed by Paul Douglas in the 1926
Chicago commemoration of the Wealth of Nations: a necessary precursor of
Karl Marx.
Emil Kauder's contribution was not limited to his portrayal of Adam Smith
as the destroyer of a previously sound tradition of economic theory, as the
founder of an enormous 'zag' in a Kuhnian picture of a zig-zag history of
economic thought. Also fascinating if more speculative was Kauder's esti-
mate of the essential cause of a curious asymmetry in the course of economic
thought in different countries. Why is it, for example, that the subjective
utility tradition flourished on the Continent, especially in France and Italy,
and then revived particularly in Austria, whereas the labour and cost of
production theories developed especially in Great Britain? Kauder attributed
the difference to the profound influence of religion: the scholastics, and then
France, Italy and Austria were Catholic countries, and Catholicism empha-
sized consumption as the goal of production and consumer utility and enjoy-
ment as, at least in moderation, valuable activities and goals. The British
tradition, on the contrary, beginning with Smith himself, was Calvinist, and
reflected the Calvinist emphasis on hard work and labour toil as not only
good but a great good in itself, whereas consumer enjoyment is at best a
necessary evil, a mere requisite to continuing labour and production.
On reading Kauder, I considered this view a challenging insight, but essen-
tially an unproven speculation. However, as I continued studying economic
thought and embarked on writing these volumes, I concluded that Kauder
was being confirmed many times over. Even though Smith was a 'moderate'
Calvinist, he was a staunch one nevertheless, and I came to the conclusion
that the Calvinist emphasis could account, for example, for Smith's otherwise
puzzling championing of usury laws, as well as his shift in emphasis from the
capricious, luxury-loving consumer as the determinant of value, to the virtu"-
ous labourer embedding his hours of toil into the value of his material
But if Smith could be accounted for by Calvinism, what of the Spanish-
Portuguese Jew-turned-Quaker, David Ricardo, surely no Calvinist? Here it
seems to me that recent research into the dominant role of James Mill as
mentor of Ricardo and major founder of the 'Ricardian system' comes strongly
into play. For Mill was a Scotsman ordained as a Presbyterian minister and
steeped in Calvinism; the fact that, later in life, Mill moved to London and
became an agnostic had no effect on the Calvinist nature of Mill's basic
attitudes toward life and the world. Mill's enormous evangelical energy, his
crusading for social betterment, and his devotion to labour toil (as well as the
Introduction xiii

cognate Calvinist virtue of thrift) reflected his lifelong Calvinist world-out-

look. John Stuart Mill's resurrection of Ricardianism may be interpreted as
his fileopietist devotion to the memory of his dominant father, and Alfred
Marshall's trivialization ofAustrian insights into his own neo-Ricardian schema
also came from a highly moralistic and evangelical neo-Calvinist.
Conversely, it is no accident that the Austrian School, the major challenge
to the Smith-Ricardo vision, arose in a country that was not only solidly
Catholic, but whose values and attitudes were still heavily influenced by
Aristotelian and Thomist thought. The German precursors of the Austrian
School flourished, not in Protestant and anti-Catholic Prussia, but in those
German states that were either Catholic or were politically allied to Austria
rather than Prussia.
The result of these researches was my growing conviction that leaving out
religious outlook, as well as social and political philosophy, would disas-
trously skew any picture of the history of economic thought. This is fairly
obvious for the centuries before the nineteenth, but it is true for that century
as well, even as the technical apparatus takes on more of a life of its own.
In consequence of these insights, these volumes are very different from the
norm, and not just in presenting an Austrian rather than a neoclassical or
institutionalist perspective. The entire work is much longer than most since it
insists on bringing in all the 'lesser' figures and their interactions as well as
emphasizing the importance of their religious and social philosophies as well
as their narrower strictly 'economic' views. But I would hope that the length
and inclusion of other elements does not make this work less readable. On
the contrary, history necessarily means narrative, discussion of real persons
as well as their abstract theories, and includes triumphs, tragedies, and con-
flicts, conflicts which are often moral as well as purely theoretical. Hence, I
hope that, for the reader, the unwonted length will be offset by the inclusion
of far more human drama than is usually offered in histories of economic

Murray N. Rothbard
Las Vegas, Nevada

1. Joseph Schumpeter's valuable and monumental History (~t' Economic Analysis (New York:
Oxford University Press, 1954), has sometimes been referred to as 'Austrian'. But while
Schumpeter was raised in Austria and studied under the great Austrian Bohm-Bawerk, he
himself was a dedicated Walrasian, and his History was, in addition, eclectic and idiosyn-
2. For an explanation of the three leading Austrian paradigms at the present time, see Murray
N. Rothbard, The Present State (~t' Austrian Economics (Auburn, Ala.: Ludwig von Mises
Institute, 1992).
3. When the present author was preparing for his doctoral orals at Columbia University, he
xiv Economic thought before Adam Smith

had the venerable John Maurice Clark as examiner in the history of economic thought.
When he asked Clark whether he should read Jevons, Clark replied, in some surprise:
'What's the point? The good in Jevons is all in Marshall' .
4. Joseph Dorfman, The Economic Mind in American Civilization (5 vols, New York: Viking
Press, 1946-59); Quentin Skinner, The Foundations (~t' Modern Political Thought (2 vols,
Cambridge: Cambridge University Press, 1978).
5. Thomas S. Kuhn, The Structure (~t' Scientific Revolutions (1962, 2nd ed., Chicago: Univer-
sity of Chicago Press, 1970).
6. The attention devoted in recent years to a brilliant critique of neoclassical formalism as
totally dependent on obsolete mid-nineteenth century mechanics is a welcome sign of this
recent change of attitude. See Philip Mirowski, More Heat than Light (Cambridge: Cam-
bridge University Press, 1989).
7. At the present time, when English has become the European lingua franca, and most
European journals publish articles in English, this barrier has been minimized.

These volumes were directly inspired by Mark Skousen, of Rollins College,

Florida, who urged me to write a history of economic thought from an
Austrian perspective. In addition to providing the spark, Skousen persuaded
the Institute for Political Economy to support my research during its first
academic year. Mark first envisioned the work as a standard Smith-to-the-
present moderately sized book, a sort of contra-Heilbroner. After pondering
the problem, however, I told him that I would have to begin with Aristotle,
since Smith was a sharp decline from many of his predecessors. Neither of us
realized then the scope or length of the ensuing research.
It is impossible to list all the persons from whom I have learned in a
lifetime of instruction and discussion in the history of economics and all its
cognate disciplines. Here I shall have to slight most of them and single out a
few. The dedication acknowledges my immense debt to Ludwig von Mises
for providing a mighty edifice of economic theory, as well as for his teaching,
his friendship, and for the inspiring example of his life. And to Joseph
Dorfman for his path-breaking work in the history of economic thought, his
stress on the importance of the stuff of history as well as of the theories
themselves, and his painstaking instruction in historical method.
lowe a great debt to Llewellyn H. Rockwell Jr for creating and organizing
the Ludwig von Mises Institute, establishing it at Auburn University, and
building it, in merely a decade, into a flourishing and productive centre for
advancing and instructing people in Austrian economics. Not the least serv-
ice to me of the Mises Institute was attracting a network of scholars from
whom I could learn. Here again I must single out Joseph T. Salerno, of Pace
University, who has done remarkably creative work in the history of eco-
nomic thought; and that extraordinary polymath and scholar's scholar, David
Gordon of the Mises Institute, whose substantial output in philosophy, eco-
nomics and intellectual history embodies only a small fraction of his erudi-
tion in these and many other fields. Also thanks to Gary North, head of the
Institute for Christian Economics in Tyler, Texas, for leads into the extensive
bibliography on Marx and on socialism generally, and for instructing me in
the mysteries of varieties of millennialism, a-, pre- and post. None of these
people, of course, should be implicated in any of the errors herein.
Most of my research was conducted with the aid of the superb resources of
Columbia and Stanford University libraries, as well as the library at the
University of Nevada, Las Vegas, supplemented by my own book collection

xvi Economic thought before Adam Smith

accumulated over the years. Since I am one of the few scholars remaining
who stubbornly cleave to low-tech typewriters rather than adopt word proc-
essors/computers, I have been dependent on the services of a number of
typists/word processors, among whom I would particularly mention Janet
Banker and Donna Evans of the University of Nevada, Las Vegas.
In addition the author and publishers wish to thank the following who have
kindly given permission for the use of copyright material.

Groenewegen, P.D. (ed.), The Economics of A.R.J. Turgot. Copyright 1977,

by Martinus Nijhoff, The Hague. Reprinted by permission of Kluwer Aca-
demic Publishers.

Rothkrug, Lionel, Opposition to Louis XIV. Copyright 1965, renewed 1993,

by the Princeton University Press. Reprinted by permission of Princeton
University Press. _

The author would particularly like to express his appreciation for the effi-
ciency and graciousness of Mrs Berendina van Straalen, of the Rights and
Permission Dept, Kluwer Academic Publishers, Dordrecht, The Netherlands.
1 The first philosopher-economists: the Greeks

1.1 The natural law 3

1.2 The politics of the polis 6
1.3 The first 'economist': Hesiod and the problem of scarcity 8
1.4 The pre-Socratics 9
1.5 Plato's right-wing collectivist utopia 10
1.6 Xenophon on household management 12
1.7 Aristotle: private property and money 13
1.8 Aristotle: exchange and value 15
1.9 The collapse after Aristotle 18
1.10 Taoism in ancient China 23
1.11 Note 27

The first philosopher-economists: the Greeks 3

It all began, as usual, with the Greeks. The ancient Greeks were the first
civilized people to use their reason to think systematically about the world
around them. The Greeks were the first philosophers (philo sophia -lovers of
wisdom), the first people to think deeply and to figure out how to attain and
verify knowledge about the world. Other tribes and peoples had tended to
attribute natural events to arbitrary whims of the gods. A violent thunder-
storm, for example, might be ascribed to something that had irritated the god
of thunder. The way to bring on rain, then, or to curb violent thunderstorms,
would be to find out what acts of man would please the god of rain or appease
the thunder god. Such people would have considered it foolish to try to figure
out the natural causes of rain or of thunder. Instead, the thing to do was to
find out what the relevant gods wanted and then try to supply their needs.
The Greeks, in contrast, were eager to use their reason - their sense
observations and their command of logic - to investigate and learn about
their world. In so doing, they gradually stopped worrying about the whims of
the gods and to investigate actual entities around them. Led in particular by
the great Athenian philosopher Aristotle (384-322 B.C.), a magnificent and
creative systematizer known to later ages as The Philosopher, the Greeks
evolved a theory and a method of reasoning and of science which later came
to be called the natural law.

1.1 The natural law

Natural law rests on the crucial insight that to be necessarily means to be
something, that is, some particular thing or entity. There is no Being in the
abstract. Everything that is, is some particular thing, whether it be a stone, a
cat, or a tree. By empirical fact there is more than one kind of thing in the
universe; in fact there are thousands, if not millions of kinds of things. Each
thing has its own particular set of properties or attributes, its own nature, which
distinguishes it from other kinds of things. A stone, a cat, an elm tree; each has
its own particular nature, which man can discover, study and identify.
Man studies the world, then, by examining entities, identifying similar
kinds of things, and classifying them into categories each with its own
properties and nature. If we see a cat walking down the street, we can
immediately include it into a set of things, or animals, called 'cats' whose
nature we have already discovered and analysed.
If we can discover and learn about the natures of entities X and Y, then we
can discover what happens when these two entities interact. Suppose, for
example, that when a certain amount of X interacts with a given amount of Y
we get a certain quantity of another thing, Z. We can then say that the effect,
Z, has been caused by the interaction of X and Y. Thus, chemists may dis-
cover that when two molecules of hydrogen interact with one molecule of
oxygen, the result is one molecule of a new entity, water. All these entities -
4 Economic thought before Adam Smith

hydrogen, oxygen and water - have specific discoverable properties or na-

tures which can be identified.
We see, then, that the concepts of cause and effect are part and parcel of
natural law analysis. Events in the world can be traced back to the inter-
actions of specific entities. Since natures are given and identifiable, the inter-
actions of the various entities will be replicable under the same conditions.
The same causes will always yield the same effects.
For the Aristotelian philosophers, logic was not a separate and isolated
discipline, but an integral part of the natural law. Thus, the basic process of
identifying entities led, in 'classical' or Aristotelian logic, to the Law of
Identity: a thing is, and cannot be anything other than, what it is: a is a.
It follows, then, that an entity cannot be the negation of itself. Or, put
another way, we have the Law of Non-Contradiction: a thing cannot be both
a and non-a. a is not and cannot be non-a.
Finally, in our world of numerous kinds of entities, anything must be either
a or it won't be; in short, it will either be a or non-a. Nothing can be both.
This gives us the third well-known law of classical logic: the Law of the
Excluded Middle: everything in the universe is either a or non-a.
But if every entity in the universe - if hydrogen, oxygen, stone, or cats -
can be identified, classified, and its nature examined, then so too can man.
Human beings must also have a specific nature with specific properties that
can be studied, and from which we can obtain knowledge. Human beings are
unique in the universe because they can and do study themselves, as well as
the world around them, and try to figure out what goals they should pursue
and what means they can employ to achieve them.
The concept of 'good' .(and therefore of 'bad') is only relevant to living
entities. Since stones or molecules have no goals or purposes, any idea of
what might be 'good' for a molecule or stone would properly be considered
bizarre. But what might be 'good' for an elm tree or a dog makes a great deal
of sense: specifically, 'the good' is whatever conduces to the life and the
flourishing of the living entity. The 'bad' is whatever injures such an entity's
life or prosperity. Thus, it is possible to develop an 'elm tree ethics' by
discovering the best conditions: soil, sunshine, climate, etc., for the growth
and sustenance of elm trees; and by trying to avoid conditions deemed 'bad'
for elm trees: elm blight, excessive drought, etc. A similar set of ethical
properties can be worked out for various breeds of animals.
Thus, natural law sees ethics as living-entity- (or species-) relative. What
is good for cabbages will differ from what is good for rabbits, which in turn
will differ from what is good or bad for man. The ethic for each species will
differ according to their respective natures.
Man is the only species which can - and indeed must - carve out an ethic
for himself. Plants lack consciousness, and therefore cannot choose or act.
The first philosopher-economists: the Greeks 5

The consciousness of animals is narrowly perceptual and lacks the concep-

tual: the ability to frame concepts and to act upon them. Man, in the famous
Aristotelian phrase, is uniquely the rational animal - the species that uses
reason to adopt values and ethical principles, and that acts to attain these
ends. Man acts; that is, he adopts values and purposes, and chooses the ways
to achieve them.
Man, therefore, in seeking goals and ways to attain them, must discover
and work within the framework of the natural law: the properties of himself
and of other entities and the ways in which they may interact.
Western civilization is in many ways Greek; and the two great philosophic
traditions of ancient Greece which have been shaping the Western mind ever
since have been those of Aristotle and his great teacher and antagonist Plato
(428-347 BC). It has been said that every man, deep down, is either a
Platonist or an Aristotelian, and the divisions run throughout their thought.
Plato pioneered the natural law approach which Aristotle developed and
systematized; but the basic thrust was quite different. For Aristotle and his
followers, man's existence, like that of all other creatures, is 'contingent', i.e.
it is not necessary and eternal. Only God's existence is necessary and tran-
scends time. The contingency of man's existence is simply an unalterable
part of the natural order, and must be accepted as such.
To the Platonists, however, especially as elaborated by Plato's follower,
the Egyptian Plotinus (204-270 AD), these inevitable limitations of man's
natural state were intolerable and must be transcended. To the Platonists, the
actual, concrete, temporal factual existence of man was too limited. Instead,
this existence (which is all that any of us has ever seen) is a fall from grace, a
fall from the original non-existent, ideal, perfect, eternal being of man, a god-
like being perfect and therefore without limits. In a bizarre twist of language,
this perfect and never-existent being was held up by the Platonists as the truly
existent, the true essence of man, from which we have all been alienated or
cut off. The nature of man (and of all other entities) in the world is to be some
thing and to exist in time; but in the semantic twist of the Platonists, the truly
existent man is to be eternal, to live outside of time, and to have no limits.
Man's condition on earth is therefore supposed to be a state of degradation
and alienation, and his purpose is supposed to be to work his way back to the
'true' limitless and perfect self alleged to be his original state. Alleged, of
course, on the basis of no evidence whatever - indeed, evidence itself identi-
fies, limits, and therefore, to the Platonic mind, corrupts.
Plato's and Plotinus's views of man's allegedly alienated state were highly
influential, as we shall see, in the writings of Karl Marx and his followers.
Another Greek philosopher, emphatically different from the Aristotelian tra-
dition, who prefigured Hegel and Marx was the early pre-Socratic philoso-
pher Heraclitus of Ephesus (c.535-475 BC). He was pre-Socratic in the sense
6 Economic thought before Adam Smith

of predating Plato's great teacher Socrates (470-399 BC), who wrote nothing
but has come down to. us as interpreted by Plato and by several other follow-
ers. Heraclitus, who was aptly given the title 'The Obscure' by the Greeks,
taught that sometimes opposites, a and non-a, can be identical, or, in other
words, that a can be non-a. This defiance of elemental logic can perhaps be
excused in someone like Heraclitus, who wrote before Aristotle developed
classical logic, but it is hard to be so forbearing to his later followers.

1.2 The politics of the polis

When man turns the use of his reason from the inanimate world to man
himself and to social organization, it becomes difficult for pure reason to
avoid giving way to the biases and prejudices of the political framework of
the age. This was all too true of the Greeks, including the Socratics, Plato
and Aristotle. Greek life was organized in small city-states (the polis) some
of which were able to carve out overseas empires. The largest city-state,
Athens, covered an area of only about one thousand square miles, or half
the size of modern Delaware. The key facet of Greek political life was that
the city-state was run by a tight oligarchy of privileged citizens, most of
whom were large landowners. Most of the population of the city-state were
slaves or resident foreigners, who generally performed the manual labour
and commercial enterprise respectively. The privilege of citizenship was
reserved to descendants of citizens. While Greek city-states fluctuated be-
tween outright tyrannies and democracies, at its most 'democratic' Athens,
for example, reserved the privileges of democratic rule to 7 per cent of the
population, the rest of whom were either slaves or resident aliens. (Thus, in
Athens of the fifth century BC, there were approximately 30 000 citizens
out of a total population of 400 000.)
As privileged landowners living off taxes and the product of slaves, Athe-
nian citizens had the leisure for voting, discussion, the arts and - in the case
of the particularly intelligent - philosophizing. Although the philosopher
Socrates was himself the son of a stonemason, his political views were ultra-
elitist. In the year 404 BC, the despotic state of Sparta conquered Athens and
established a reign of terror known as the Rule of the Thirty Tyrants. When
the Athenians overthrew this short-lived rule a year later, the restored democ-
racy executed the aged Socrates, largely on suspicion of sympathy with the
Spartan cause. This experience confirmed Socrates's brilliant young disciple,
Plato, the scion of a noble Athenian family, in what would now be called an
'ultra-right' devotion to aristocratic and despotic rule.
A decade later, Plato set up his Academy on the outskirts of Athens as a
think-tank not only of abstract philosophic teaching and research, but also as
a fountainhead of policy programmes for social despotism. He himself tried
three times unsuccessfully to set up despotic regimes in the city state of
The first philosopher-economists: the Greeks 7

Syracuse, while no less than nine of Plato's students succeeded in establish-

ing themselves as tyrants over Greek city-states.
While Aristotle was politically more moderate than Plato, his aristocratic
devotion to the polis was fully as evident. Aristotle was born of an aristo-
cratic family in the Macedonian coastal town of Stagira, and entered Plato's
Academy as a student at the age of 17, in 367 BC. There he remained until
Plato's death 20 years later, after which he left Athens and eventually re-
turned to Macedonia, where he joined the court of King Philip and tutored
the young future world conqueror, Alexander the Great. After Alexander
ascended the throne, Aristotle returned to Athens in 335 BC and established
his own school of philosophy at the Lyceum, from which his great works
have come down to us as lecture notes written by himself or transcribed by
his students. When Alexander died in 323 BC, the Athenians felt free to vent
their anger at Macedonians and their sympathizers, and Aristotle was ousted
from the city, dying shortly thereafter.
Their aristocratic bent and their lives within the matrix of an oligarchic
polis had a greater impact on the thought of the Socratics than Plato's various
excursions into theoretical right-wing collectivist Utopias or in his students'
practical attempts at establishing tyranny. For the social status and political
bent of the Socratics coloured their ethical and political philosophies and
their economic views. Thus, for both Plato and Aristotle, 'the good' for man
was not something to be pursued by the individual, and neither was the
individual a person with rights that were not to be abridged or invaded by his
fellows. For Plato and Aristotle, 'the good' was naturally not to be pursued
by the individual but by the polis. Virtue and the good life were polis- rather
than individual-oriented. All this means that Plato's and Aristotle's thought
was statist and elitist to the core, a statism which unfortunately permeated
'classical' (Greek and Roman) philosophy as well as heavily influencing
Christian and medieval thought. Classical 'natural law' philosophy therefore
never arrived at the later elaboration, first in the Middle Ages and then in the
seventeenth and eighteenth centuries, of the 'natural rights' of the individual
which may not be invaded by man or by government.
In the more strictly economic realm, the statism of the Greeks means the
usual aristocratic exaltation of the alleged virtues of the military arts and of
agriculture, as well as a pervasive contempt for labour and for trade, and
consequently of money-making and the seeking and earning of profit. Thus
Socrates, openly despising labour as unhealthy and vulgar, quotes the king of
Persia to the effect that by far the noblest arts are agriculture and war. And
Aristotle wrote that no good citizens 'should be permitted to exercise any low
mechanical employment or traffic, as being ignoble and destructive to virtue.'
Furthermore, the Greek elevation of the polis over the individual led to
their taking a dim view of economic innovation and entrepreneurship. The
8 Economic thought before Adam Smith

entrepreneur, the dynamic innovator, is after all the locus of individual ego
and creativity, and is therefore the harbinger of often disturbing social change,
as well as economic growth. But the Greek and Socratic ethical ideal for the
individual was not an unfolding and flowering of inner possibilities, but
rather a public/political creature moulded to conform to the demands of the
polis. That kind of social ideal was designed to promote a frozen society of
politically determined status, and certainly not a society of creative and
dynamic individuals and innovators.

1.3 The first 'economist': Hesiod and the problem of scarcity

No one should be misled into thinking that the ancient Greeks were 'econo-
mists' in the modern sense. In the course of pioneering in philosophy, their
philosophizing on man and his world yielded fragments of politico-economic
or even strictly economic thoughts and insights. But there were no modern-
style treatises on economics per se. It is true that the term 'economics' is
Greek, stemming from the Greek oikonomia, but oikonomia means not eco-
nomics in our sense but 'household management', and treatises on 'econom-
ics' would discuss what might be called the technology of household man-
agement - useful perhaps, but certainly not what we would regard today as
economics. There is furthermore a danger, unfortunately not avoided by
many able historians of economic thought, of eagerly reading into fragments
of ancient sages the knowledge gained by modern economics. While we
surely should not overlook any giants of the past, we must also avoid any
'presentist' seizing upon a few obscure sentences to hail alleged but non-
existent forerunners of sophisticated modern concepts.
The honour of being the first Greek economic thinker goes to the poet
Hesiod, a Boeotian who lived in the very early ancient Greece of the middle
of the eighth century Be. Hesiod lived in the small, self-sufficient agricul-
tural community of Ascra, which he himself refers to as a 'sorry place... bad
in winter, hard in summer, never good'. He was therefore naturally attuned to
the eternal problem of scarcity, of the niggardlinesss of resources as con-
trasted to the sweep of man's goals and desires. Hesiod's great poem, Works
and Days, consisted of hundreds of verses designed for solo recitation with
musical accompaniment. But Hesiod was a didactic poet rather than a mere
entertainer, and he often broke out of his story line to educate his public in
traditional wisdom or in explicit rules for human conduct. Of the 828 verses
in the poem, the first 383 centred on the fundamental economic problem of
scarce resources for the pursuit of numerous and abundant human ends and
Hesiod adopts the common religious or tribal myth of the 'Golden Age', of
man's alleged initial state on earth as an Eden, a Paradise of limitless abun-
dance. In this original Eden, of course, there was no economic problem, no
The first philosopher-economists: the Greeks 9

problem of scarcity, because all of man's wants were instantaneously ful-

filled. But now, all is different, and 'men never rest from labour and sorrow
by day and from perishing by night.' The reason for this low state is an all-
encompassing scarcity, the result of man's ejection from Paradise. Because of
scarcity, notes Hesiod, labour, materials and time have to be allocated effi.-
ciently. Scarcity, moreover, can only be partially overcome by an energetic
application of labour and of capital. In particular, labour - work - is crucial,
and Hesiod analyses the vital factors which may induce man to abandon the
god-like state of leisure. The first of these forces is of course basic material
need. But happily, need is reinforced by a social disapproval of sloth, and by
the desire to emulate the consumption standards of one's fellows. To Hesiod,
emulation leads to the healthy development of a spirit of competition, which
he calls 'good conflict', a vital force in relieving the basic problem of scar-
To keep competition just and harmonious, Hesiod vigorously excludes
such unjust methods of acquiring wealth as robbery, and advocates a rule of
law and a respect for justice to establish order and harmony within society,
and to allow competition to develop within a matrix of harmony and justice.
It should already be clear that Hesiod had a far more sanguine view of
economic growth, of labour and of vigorous competition, than did the far
more philosophically sophisticated Plato and Aristotle three and a half centu-
ries later.

1.4 The pre-Socratics

Man is prone to error and even folly, and therefore a history of economic
thought cannot confine itself to the growth and development of economic
truths. It must also treat influential error, that is, error that unfortunately
influenced later developments in the discipline. One such thinker is the Greek
philosopher Pythagoras of Samos (c.582-c.507 Be) who, two centuries after
Hesiod, developed a school of thought which held that the only significant
reality is number. The world not only is number, but each number even
embodies moral qualities and other abstractions. Thus justice, to Pythagoras
and his followers, is the number four, and other numbers consisted of various
moral qualities. While Pythagoras undoubtedly contributed to the develop-
ment of Greek mathematics, his number-mysticism could well have been
characterized by the twentieth century Harvard sociologist Pitirim A. Sorokin
as a seminal example of 'quantophrenia' and 'metromania'. It is scarcely an
exaggeration to see in Pythagoras the embryo of the burgeoning and
overweeningly arrogant mathematical economics and econometrics of the
present day.
Pythagoras thus contributed a sterile dead-end to philosophy and economic
thought, one that later influenced Aristotle's pawky and fallacious attempts to
10 Economic thought before Adam Smith

develop a mathematics of justice and of economic exchange. The next impor-

tant positive development was contributed by the pre-Socratic (actually con-
temporary of Socrates) Democritus (c.460-c.370 Be).
This influential scholar from Abdera was the founder of 'atomism' in
cosmology, that is, the view that the underlying structure of reality consists of
interacting atoms. Democritus contributed two important strands of thought
to the development of economics. First, he was the founder of subjective
value theory. Moral values, ethics, were absolute, Democritus taught, but
economic values were necessarily subjective. 'The same thing', Democritus
writes, may be 'good and true for all men, but the pleasant differs from one
and another'. Not only was valuation subjective, but Democritus also saw
that the usefulness of a good will fall to nothing and become negative if its
supply becomes superabundant.
Democritus also pointed out that if people restrained their demands and
curbed their desires, what they now possess would make them seem rela-
tively wealthy rather than impoverished. Here again, the relative nature of the
subjective utility of wealth is recognized. In addition, Democritus was the
first to arrive at a rudimentary notion of time preference: the Austrian insight
that people prefer a good at present to the prospect of the good arriving in the
future. As Democritus explains, 'it is not sure whether the young man will
ever attain old age; hence, the good on hand is superior to the one still to
In addition to the adumbration of subjective utility theory, Democritus's
other major contribution to economics was his pioneering defence of a sys-
tem of private property. In contrast to Oriental despotisms, in which all
property was owned or controlled by the emperor and his subordinate bu-
reaucracy, Greece rested on a society and economy of private property.
Democritus, having seen the contrast between the private property economy
of Athens and the oligarchic collectivism of Sparta, concluded that private
property is a superior form of economic organization. In contrast to commu-
nally owned property, private property provides an incentive for toil and
diligence, since 'income from communally held property gives less pleasure,
and the expenditure less pain'. 'Toil', the philosopher concluded, 'is sweeter
than idleness when men gain what they toil for or know that they will use it'.

1.5 Plato's right-wing collectivist utopia

Plato's search for a hierarchical, collectivist utopia found its classic expres-
sion in his most famous and influential work, The Republic. There, and later
in The Laws, Plato sets forth the outline of his ideal city-state: one in which
right oligarchic rule is maintained by philosopher-kings and their philo-
sophic colleagues, thus supposedly ensuring rule by the best and wisest in the
community. Underneath the philosophers in the coercive hierarchy are the
The first philosopher-economists: the Greeks 11

'guardians' - the soldiers, whose role is to aggress against other cities and
lands and to defend their polis from external aggression. Underneath them
are to be the body of the people, the despised producers: labourers, peasants
and merchants who produce the material goods on which the lordly philoso-
phers and guardians are to live. These three broad classes are supposed to
reflect a shaky and pernicious leap if there ever was one - the proper rule
over the soul in each human being. To Plato, each human being is divided
into three parts: 'one that craves, one that fights, and one that thinks', and the
proper hierarchy of rule within each soul is supposed to be reason first,
fighting next, and finally, and the lowest, grubby desire.
The two ruling classes - the thinkers and the guardians - that really count
are, in Plato's ideal state, to be forced to live under pure communism. There
is to be no private property whatsoever among the elite; all things are to be
owned communally, including women and children. The elite are to be forced
to live together and share common meals. Since money and private posses-
sions, according to the aristocrat Plato, only corrupt virtue, they are to be
denied to the upper classes. Marriage partners among the elite are to be
selected strictly by the state, which is supposed to proceed according to the
scientific breeding already known in animal husbandry. If any of the philoso-
phers or guardians find themselves unhappy about this arrangement, they will
have to learn that their personal happiness means nothing compared to the
happiness of the polis as a whole - a rather murky concept at best. In fact,
those who are not seduced by Plato's theory of the essential reality of ideas
will not believe that there is such a real living entity as a polis. Instead, the
city-state or community consists only of living, choosing individuals.
To keep the elite and the subject masses in line, Plato instructs the philoso-
pher-rulers to spread the 'noble' lie that they themselves are descended from
the gods whereas the other classes are of inferior heritage. Freedom of speech
or of inquiry was, as one might expect, anathema to Plato. The arts are
frowned on, and the life of the citizens was to be policed to suppress any
dangerous thoughts or ideas that might come to the surface.
Remarkably, in the very course of setting forth his classic apologia for
totalitarianism, Plato contributed to genuine economic science by being the
first to expound and analyse the importance of the division of labour in
society. Since his social philosophy was founded on a necessary separation
between classes, Plato went on to demonstrate that such specialization is
grounded in basic human nature, in particular its diversity and inequality.
Plato has Socrates say in The Republic that specialization arises because 'we
are not all alike; there are many diversities of natures among us which are
adapted to different occupations'.
Since men produce different things, the goods are naturally traded for each
other, so that specialization necessarily gives rise to exchange. Plato also
12 Economic thought before Adam Smith

points out that this division of labour increases the production of all the
goods. Plato saw no problem, however, in morally ranking the various occu-
pations, with philosophy of course ranking highest and labour or trade being
sordid and ignoble.
The use of gold and silver as money greatly accelerated with the invention
of coinage in Lydia in the early seventh century Be and coined money
quickly spread to Greece. In keeping with his distaste for money-making,
trade and private property, Plato was perhaps the first theorist to denounce
the use of gold and silver as money. He also disliked gold and silver precisely
because they served as international currencies accepted by all peoples. Since
these precious metals are universally accepted and exist apart from the impri-
matur of government, gold and silver constitute a potential threat to eco-
nomic and moral regulation of the polis by the rulers. Plato called for a
government fiat currency, heavy fines on the importation of gold from outside
the city-state, and the exclusion from citizenship of all traders and workers
who deal with money.
One of the hallmarks of an ordered utopia sought by Plato is that, to
remain ordered and controlled, it must be kept relatively static. And that
means little or no change, innovation or economic growth. Plato anticipated
some present-day intellectuals in frowning on economic growth, and for
similar reasons: notably, fear of collapse of the domination of the state by the
ruling elite. Particularly difficult in trying to freeze a static society is the
problem of population growth. Quite consistently, therefore, Plato called for
freezing the size of the population of the city-state, keeping the number of its
citizens limited to 5 000 agricultural landlord families.

1.6 Xenophon on household management

A disciple and contemporary of Plato was the Athenian landed aristocrat and
army general, Xenophon (430-354 Be). Xenophon's economic writings were
scattered throughout such works as an account of the education of a Persian
price, a treatise on how to increase government revenue, and a book on
'economics' in the sense of thoughts on the technology of household and
farm management. Most of Xenophon's adumbrations were the usual Hel-
lenic scorn for labour and trade, and admiration for agriculture and the
military arts, coupled with a call for a massive increase in government
operations and interventions in the economy. These included improving the
port of Athens, building markets and inns, establishing a governmental mer-
chant fleet and greatly expanding the number of government-owned slaves.
Interspersed in this roll of commonplace bromides, however, were some
interesting insights into economic matters. In the course of his treatise on
household management, Xenophon pointed out that 'wealth' should be de-
fined as a resource that a person can use and knows how to use. In this way,
The first philosopher-economists: the Greeks 13

something that an owner has neither the ability nor the knowledge to use
cannot really constitute part of his wealth.
Another insight was Xenophon's anticipation of Adam Smith's famous
dictum that the extent of the division of labour in society is necessarily
limited by the extent of the market for the products. Thus, in an important
addition to Plato's insights on the division of labour, written 20 years after
The Republic, Xenophon says that 'In small towns the same workman makes
chairs and doors and plows and tables, and often the same artisan builds
houses ... ' whereas in the large cities 'many people have demands to make
upon each branch of industry', and therefore 'one trade alone, and very often
even less than a whole trade, is enough to support a man'. In large cities', we
find one man making men's boots only; and another, women's only' ... one
man lives by cutting out garments, another by fitting together the pieces'.
Elsewhere, Xenophon outlines the important concept of general equilib-
rium as a dynamic tendency of the market economy. Thus, he states that
when there are too many coppersmiths, copper becomes cheap and the smiths
go bankrupt and turn to other activities, as would happen in agriculture or
any other industry. He also sees clearly that an increase in the supply of a
commodity causes a fall in its price.

1.7 Aristotle: private property and money

The views of the great philosopher Aristotle are particularly important be-
cause the entire structure of his thought had an enormous and even dominant
influence on the economic and social thought of the high and late Middle
Ages, which considered itself Aristotelian.
Although Aristotle, in the Greek tradition, scorned moneymaking and was
scarcely a partisan of laissez-faire, he set forth a trenchant argument in
favour of private property. Perhaps influenced by the private-property argu-
ments of Democritus, Aristotle delivered a cogent attack on the communism
of the ruling class called for by Plato. He denounced Plato's goal of the
perfect unity of the state through communism by pointing out that such
extreme unity runs against the diversity of mankind, and against the recipro-
cal advantage that everyone reaps through market exchange. Aristotle then
delivered a point-by-point contrast of private as against communal property.
First, private property is more highly productive and will therefore lead to
progress. Goods owned in common by a large number of people will receive
little attention, since people will mainly consult their own self-interest and
will neglect all duty they can fob off on to others. In contrast, people will
devote the greatest interest and care to their own property.
Second, one of Plato's arguments for communal property is that it is
conducive to social peace, since no one will be envious of, or try to grab the
property of, another. Aristotle retorted that communal property would lead to
14 Economic thought before Adam Smith

continuing and intense conflict, since each will complain that he has worked
harder and obtained less than others who have done little and taken more
from the common store. Furthermore, not all crimes or revolutions, declared
Aristotle, are powered by economic motives. As Aristotle trenchantly put it,
'men do not become tyrants in order that they may not suffer cold'.
Third, private property is clearly implanted in man's nature: His love of
self, of money, and of property, are tied together in a natural love of exclusive
ownership. Fourth, Aristotle, a great observer of past and present, pointed out
that private property had existed always and everywhere. To impose commu-
nal property on society would be to disregard the record of human experi-
ence, and to leap into the new and untried. Abolishing private property would
probably create more problems than it would solve.
Finally, Aristotle wove together his economic and moral theories by pro-
viding the brilliant insight that only private property furnishes people with
the opportunity to act morally, e.g. to practise the virtues of benevolence and
philanthropy. The compulsion of communal property would destroy that
While Aristotle was critical of money-making, he still opposed any limita-
tion - such as Plato had advocated - on an individual's accumulation of
private property. Instead, education should teach people voluntarily to curb
their rampant desires and thus lead them to limit their own accumulations of
Despite his cogent defence of private property and opposition to coerced
limits on wealth, the aristocrat Aristotle was fully as scornful of labour and
trade as his predecessors. Unfortunately, Aristotle stored up trouble for later
centuries by coining a fallacious, proto-Galbraithian distinction between 'natu-
ral' needs, which should be satisfied, and 'unnatural' wants, which are limit-
less and should be abandoned. There is no plausible argument to show why,
as Aristotle believes, the desires filled by subsistence labour or barter are
'natural', whereas those satisfied by far more productive money exchanges
are artificial, 'unnatural' and therefore reprehensible. Exchanges for mon-
etary gain are simply denounced as immoral and 'unnatural', specifically
such activities as retail trade, commerce, transportation and the hiring of
labour. Aristotle had a particular animus toward retail trade, which of course
directly serves the consumer, and which he would have liked to eliminate
Aristotle is scarcely consistent in his economic lucubrations. For although
monetary exchange is condemned as immoral and unnatural, he also praises
such a network of exchanges as holding the city together through mutual and
reciprocal give-and-take.
The confusion in Aristotle's thought between the analytic and the 'moral'
is also shown in his discussion of money. On the one hand, he sees that the
The first philosopher-economists: the Greeks 15

growth of money greatly facilitated production and exchange. He sees also

that money, the medium of exchange, represents general demand, and 'holds
all goods together'. Also money eliminates the grave problem of 'double
coincidence of wants', where each trader will have to desire the other man's
goods directly. Now each person can sell goods for money. Furthermore,
money serves as a store of values to be used for purchases in the future.
Aristotle, however, created great trouble for the future by morally con-
demning the lending of money at interest as 'unnatural'. Since money cannot
be used directly, and is employed only to facilitate exchanges, it is 'barren'
and cannot itself increase wealth. Therefore the charging of interest, which
Aristotle incorrectly thought to imply a direct productivity of money, was
strongly condemned as contrary to nature.
Aristotle would have done better to avoid such hasty moral condemnation
and to try to figure out why interest is, in fact, universally paid. Might there
not be something 'natural', after all, about a rate of interest? And if he had
discovered the economic reason for the charging - and the paying - of
interest, perhaps Aristotle would have understood why such charges are
moral and not unnatural.
Aristotle, like Plato, was hostile to economic growth and favoured a static
society, all of which fits with his opposition to money-making and the accu-
mulation of wealth. The insight of old Hesiod into the economic problem as
the allocation of scarce means for the satisfying of alternative wants was
virtually ignored by both Plato and Aristotle, who instead counselled the
virtue of scaling down one's desires to fit whatever means were available.

1.8 Aristotle: exchange and value

Aristotle's difficult but influential discussion of exchange suffered grievously
from his persistent tendency to confuse analysis with instant moral judge-
ment. As in the case of charging interest, Aristotle did not remain content to
complete a study of why exchanges take place in real life before leaping in
with moral pronouncements. In analysing exchanges, Aristotle declares that
these mutually beneficial transactions imply a 'proportional reciprocity', but
it is characteristically ambivalent in Aristotle whether all exchanges are by
nature marked by reciprocity, or whether only proportionately reciprocal
exchanges are truly 'just'. And of course Aristotle was never one to raise the
question: why do people voluntarily engage in 'unjust' exchanges? In the
same way, why should people voluntarily pay interest charges if they are
really 'unjust'?
To muddle matters further, Aristotle, under the influence of the Pythago-
rean number-mystics, introduced obscure and obfuscating mathematical terms
into what could have been a straightforward analysis. The only dubious
benefit of this contribution was to give many happy hours to historians of
J6 Economic thought before Adam Smith

economic thought attempting to read sophisticated modern analysis into Aris-

totle. This problem has been aggravated by an unfortunate tendency among
historians of thought to regard great thinkers of the past as necessarily con-
sistent and coherent. That of course is a grievous historiographic error; how-
ever great they may have been, any thinkers can slip into error and inconsist-
ency, and even write gibberish on occasion. Many historians of thought do
not seem able to recognize that simple fact.
Aristotle's famous discussion of reciprocity in exchange in Book V of his
Nichomachean Ethics is a prime example of descent into gibberish. Aristotle
talks of a builder exchanging a house for the shoes produced by a shoemaker.
He then writes: 'The number of shoes exchanged for a house must therefore
correspond to the ratio of builder to shoemaker. For if this be not so, there
will be no exchange and no intercourse'. Eh? How can there possibly be a
ratio of 'builder' to 'shoemaker'? Much less an equating of that ratio to
shoes/houses? In what units can men like builders and shoemakers be ex-
The correct answer is that there is no meaning, and that this particular
exercise should be dismissed as an unfortunate example of Pythagorean
quantophrenia. And yet various distinguished historians have read tortured
constructions of this passage to make Aristotle appear to be a forerunner of
the labour theory of value, of W. Stanley Jevons, or of Alfred Marshall. The
labour theory is read into the unsupportable assumption that Aristotle 'must
have meant' labour hours put in by the builder or shoemaker, while Josef
Soudek somehow sees here the respective skills of these producers, skills
which are then measured by their products. Soudek eventually emerges with
Aristotle as an ancestor of Jevons. In the face of all this elaborate wild goose
chase, it is a pleasure to see the verdict of gibberish supported by the eco-
nomic historian of ancient Greece, Moses I. Finley, and by the distinguished
Aristotelian scholar H.H. Joachim, who has the courage to write, 'How
exactly the values of the producers are to be determined, and what the ratio
between them can mean is, I must confess, in the end unintelligible to me'.1
Another grave fallacy in the same paragraph in the Ethics did incalculable
damage to future centuries of economic thought. There Aristotle says that in
order for an exchange (any exchange? a just exchange?) to take place, the
diverse goods and services 'must be equated', a phrase Aristotle emphasizes
several times. It is this necessary 'equation' that led Aristotle to bring in the
mathematics and the equal signs. His reasoning was that for A and B to
exchange two products, the value of both products must be equal, otherwise an
exchange would not take place. The diverse goods being exchanged for one
another must be made equal because only things of equal value will be traded.
The Aristotelian concept of equal value in exchange is just plain wrong, as
the Austrian School was to point out in the late nineteenth century. If A trades
The first philosopher-economists: the Greeks J7

shoes for sacks of wheat owned by B, A does so because he prefers the wheat
to the shoes, while B's preferences are precisely the opposite. If an exchange
takes place, this implies not an equality of values, but rather a reverse
inequality of values in the two parties making the exchange. If I buy a
newspaper for 30¢ I do so because I prefer the acquisition of the newspaper
to keeping the 30 cents, whereas the newsagent prefers getting the money to
keeping the newspaper. This double inequality of subjective valuations sets
the necessary precondition for any exchange.
If the equation of ratio of builder to labourer is best forgotten, other parts
of Aristotle's analysis have been seen by some historians as predating parts of
the economics of the Austrian School. Aristotle clearly states that money
represents human need or demand, which provides the motivation for ex-
change, and 'which holds all things together'. Demand is governed by the
use-value or desirability of a good. Aristotle follows Democritus in pointing
out that after the quantity of a good reaches a certain limit, after there is 'too
much' , the use value will plummet and become worthless. But Aristotle goes
beyond Democritus in pointing out the other side of the coin: that when a
good becomes scarcer, it will become subjectively more useful or valuable.
He states in the Rhetoric that 'what is rare is a greater good than what is
plentiful. Thus gold is a better thing than iron, though less useful'. These
statements provide an intimation of the correct influence of different levels of
supply on the value of a good, and at least a hint of the later fully formed
Austrian marginal utility theory of value, and its solution of the 'paradox' of
These are interesting allusions and suggestions; but a few fragmentary
sentences scattered throughout different books hardly constitute a fully fledged
precursor of the Austrian School. But a more interesting harbinger of
Austrianism has only come to the attention of historians in recent years: the
groundwork for the Austrian theory of marginal productivity - the process by
which the value of final products is imputed to the means, or factors, of
In his little-known work, the Topics, as well as in his later Rhetoric,
Aristotle engaged in a philosophical analysis of the relationship between
human ends and the means by which people pursue them. These means, or
'instruments of production', necessarily derive their value from the final
products useful to man, 'the instruments of action'. The greater the desirabil-
ity, or subjective value, of a good, the greater the desirability, or value of the
means to arrive at that product. More important, Aristotle introduces the
marginal element into this imputation by arguing that if the acquisition or
addition of a good A to an already desirable good C creates a more desirable
result than the addition of good B, then A is more highly valued than B. Or, as
Aristotle put it: 'judge by means of an addition, and see if the addition of A to
18 Economic thought before Adam Smith

the same thing as B makes the whole more desirable than the addition of B' .
Aristotle also introduces an even more specifically pre-Austrian, or pre-
Bohm-Bawerkian, concept by stressing the differential value of the loss,
rather than the addition of a good. Good A will be more valuable than B, if
the loss of A is considered to be worse than the loss of B. As Aristotle clearly
phrased it: 'That is the greater good whose contrary is the greater evil, and
whose loss affects us more.'
Aristotle also took note of the importance of the complementarity of eco-
nomic factors of production in imputing their value. A saw, he pointed out, is
more valuable than a sickle in the art of carpentry, but it is not more valuable
everywhere and in all pursuits. He also pointed out that a good with many
potential uses will be more desirable, or valuable, than a good with only one
Critics of the economic importance of Aristotle's analysis charge that, with
the exception of the saw-and-sickle passage, Aristotle made no economic
application of his broad philosophical treatment of imputation. But this charge
misses the crucial Austrian point - made with particular force and elaboration
by the twentieth century Austrian economist Ludwig von Mises - that eco-
nomic theory is but a part, a subset, of a broader, 'praxeological' analysis of
human action. By analysing the logical implications of the employment of
means to the pursuit of ends in all human action, Aristotle brilliantly began to
lay the groundwork for the Austrian theory of imputation and marginal pro-
ducti vity over two millennia later.

1.9 The collapse after Aristotle

It is remarkable that the great burst of economic thinking in the ancient world
covered only two centuries - the fifth and the fourth BC - and only in one
country, Greece. The rest of the ancient world, and even Greece before and
after these centuries, was essentially a desert of economic thought. Nothing
of substance came out of the great ancient civilizations in Mesopotamia and
India, and very little except political thought in the many centuries-long
civilization of China. Remarkably, little or no economic thought emerged out
of those civilizations, even though the economic institutions: trade, credit,
mining, crafts, etc. were often far advanced, and even more so than in
Greece. Here is an important indication that, contrary to Marxists and other
economic determinists, economic thought and ideas do not simply emerge as
a reflex of the development of economic institutions.
There is no way that historians of thought can ever completely penetrate
the mysteries of creativity in the human soul, and thus completely explain
this relatively brief flowering of human thought. But it is surely no accident
that it was the Greek philosophers who provided us with the first fragments
of systematic economic theory. For philosophy, too, was virtually non-exist-
The first philosopher-economists: the Greeks J9

ent in the rest of the ancient world or before this era in Greece. The essence
of philosophic thought is that it penetrates the ad hoc vagaries of day-to-day
life in order to arrive at truths that transcend the daily accidents of time and
place. Philosophy arrives at truths about the world and about human life that
are absolute, universal and eternal - at least while the world and humanity
last. It arrives, in short, at a system of natural laws. But economic analysis is
a subset of such investigation, because genuine economic theory can only
advance beyond shifting day-to-day events by penetrating truths about hu-
man action which are absolute, unchanging and eternal, which are unaffected
by changes of time and place. Economic thought, at least correct economic
thought, is itself a subset of natural laws in its own branch of investigation.
If we remember the snatches of economic thought contributed by the
Greeks: Hesiod on scarcity, Democritus on subjective value and utility, the
influence of supply and demand on value, and on time-preference, Plato and
Xenophon on the division of labour, Plato on the functions of money, Aristo-
tle on supply and demand, money, exchange, and the imputation of value
from ends to means, we see that all of these men were focusing on the logical
implications of a few broadly empirical axioms of human life: the existence
of human action, the eternal pursuit of goals by employing scarce means, the
diversity and inequality among men. These axioms are certainly empirical,
but they are so broad and pervasive that they apply to all of human life, at any
time and place. Once articulated and set forth, they impel assent to their truth
by a shock of recognition: once articulated, they become evident to the
human mind. Since these axioms are then established as certain and apodictic,
the processes of logic - themselves universal and apodictic and transcending
time and place - can be used to arrive at absolutely true conclusions.
While this method of reasoning - of philosophy and of economics - is both
empirical, being derived from the world, and true, it runs against the grain of
modern philosophies of science. In modern positivism, or neopositivism, for
example, 'evidence' is much narrower, fleeting and open to change. In much
of modern economics, using the positivist method, 'empirical evidence' is a
congeries of isolated and narrow economic events, each of which is con-
ceived as homogeneous bits of information, supposedly used to 'test', to
confirm or refute, economic hypotheses. These bits, like laboratory experi-
ments, are supposed to result in 'evidence' to test a theory. Modern positiv-
ism is unequipped to understand or handle a system of analysis - whether
classical Greek philosophy or economic theory - grounded on deductions
from fundamental axioms so broadly empirical as to be virtually self-evident
- evident to the self - once they are articulated. Positivism fails to understand
that the results of laboratory experiments are only 'evidence' because they
too make evident to the scientists (or to others who follow the experiments),
that is, make evident to the self, facts or truths not evident before. The
20 Economic thought before Adam Smith

deductive processes of logic and mathematics do the same thing: they compel
assent by making things evident to people which were not evident before.
Correct economic theory, which we have named as 'praxeological' theory, is
another way by which truths are made evident to the human mind.
Even politics, which some scoff at as not purely or strictly economics,
impinges heavily on economic thought. Politics is of course an aspect of
human action, and much of it has a crucial impact on economic life. Eternal
natural law truths about economic aspects of politics may be and have been
arrived at, and cannot be neglected in a study of the development of eco-
nomic thought. When Democritus and Aristotle defended a regime of private
property and Aristotle demolished Plato's portrayal of an ideal communism,
they were engaging in important economic analysis of the nature and conse-
quences of alternative systems of control and ownership of property.
Aristotle was the culmination of ancient economic thought as he was of
classical philosophy. Economic theorizing collapsed after the death of Aristo-
tle, and later Hellenistic and Roman epochs were virtually devoid of eco-
nomic thought. Again, it is impossible to explain fully the disappearance of
economic thought, but surely one reason must have been the disintegration of
the once proud Greek polis after the time of Aristotle. The Greek city-states
were subjected to conquest and disintegration beginning with the empire of
Alexander the Great during the life of his former mentor Aristotle. Eventu-
ally Greece, much diminished in wealth and economic prosperity, became
absorbed by the· Roman Empire.
Small wonder, then, that the only references to economic affairs should be
counsels of despair, with various Greek philosophers futilely urging their
followers to solve the problem of aggravated scarcity by drastically curbing
their wants and desires. In short, if you're miserable and poverty-stricken,
accept your lot as man's inevitable fate and try to want no more than you
have. This counsel of hopelessness and despair was preached by Diogenes
(412-323 BC) the founder of the school of Cynics, and by Epicurus (343-
270 BC), the founder of the Epicureans. Diogenes and the Cynics pursued
this culture of poverty to such length as to adopt the name and the life of
dogs; Diogenes himself made his home in a barrel. Consistent with his
outlook, Diogenes denounced the hero Prometheus, who in Greek myth stole
the gift of fire from the gods and thus made possible innovation, the growth
of human knowledge, and the progress of mankind. Prometheus, wrote
Diogenes, was properly punished by the gods for this fateful deed.
As Bertrand Russell summed up:

... Aristotle is the last Greek philosopher who faces the world cheerfully; after
him, all have, in one form or another, a philosophy of retreat. The world is bad; let
us learn to be independent of it. External goods are precarious; they are the gift of
fortune, not the reward of our own efforts.
The first philosopher-economists: the Greeks 21

The most interesting and influential school of Greek philosophers after

Aristotle was the Stoics, founded by Zeno of Clitium (c.336-264 BC), who
appeared about the year 300 BC in Athens to teach at a painted porch (stoa
poikile) after which he and his followers were called Stoics. While the Stoics
began as an offshoot of Cynicism, preaching the quenching of desire for
worldly goods, it took on a new and more optimistic note with Stoicism's
second great founder, Chrysippus (281-208 BC). Whereas Diogenes had
preached that the love of money was the root of all evil, Chrysippus coun-
tered with the quip that the 'wise man will turn three somersaults for an
adequate fee'. Chrysippus was also sound on the inherent inequality and
diversity of man: 'Nothing', he pointed out, 'can prevent some seats in the
theatre from being better than others' .
But the most important contribution of Stoic thought was in ethical, politi-
cal and legal philosophy, for it was the Stoics who first developed and
systematized, especially in the legal sphere, the concept and the philosophy
of natural law. It was precisely because Plato and Aristotle were circum-
scribed politically by the Greek polis that their moral and legal philosophy
became closely intertwined with the Greek city-state. For the Socratics, the
city-state, not the individual, was the locus of human virtue. But the destruc-
tion or subjugation of the Greek polis after Aristotle freed the thought of the
Stoics from its admixture with politics. The Stoics were therefore free to use
their reason to set forth a doctrine of natural law focusing not on the polis but
on each individual, and not on each state but on all states everywhere. In
short, in the hands of the Stoics, natural law became absolute and universal,
transcending political barriers or fleeting limitations of time and place. Law
and ethics, the principles of justice, became transcultural and transnational,
applying to all human beings everywhere. And since every man possesses the
faculty of reason, he can employ right reason to understand the truths of the
natural law. The important implication for politics is that the natural law, the
just and proper moral law discovered by man's right reason, can and should
be used to engage in a moral critique of the positive man-made laws of any
state or polis. For the first time, positive law became continually subject to a
transcendent critique based on the universal and eternal nature of man.
The Stoics were undoubtedly aided in arriving at their cosmopolitan disre-
gard for the narrow interests of the polis by the fact that most of them were
Easterners who had come from outside the Greek mainland. Zeno, the founder,
described as 'tall, gaunt, and swarthy', came from Clitium on the island of
Cyprus. Many, including Chrysippus, came from Tarsus, in Cilicia, on the
Asia Minor mainland near Syria. Later Greek Stoics were centred in Rhodes,
an island off Asia Minor.
Stoicism lasted 500 years, and its most important influence was transmit-
ted from Greece to Rome. The later Stoics, during the first two centuries after
22 Economic thought before Adam Smith

the birth of Christ, were Roman rather than Greek. The great transmitter of
Stoic ideas from Greece to Rome was the famous Roman statesman, jurist,
and orator Marcus Tullius Cicero (106-43 BC). Following Cicero, Stoic
natural law doctrines heavily influenced the Roman jurists of the second and
third centuries AD, and thus helped shape the great structures of Roman law
which became pervasive in Western civilization. Cicero's influence was as-
sured by his lucid and sparkling style, and by the fact that he was the first
Stoic to write in Latin, the language of Roman law and of all thinkers and
writers in the West down to the end of the seventeenth century. Moreover,
Cicero's and other Latin writings have been far better preserved than the
fragmentary remains we have from the Greeks.
Cicero's writings were heavily influenced by the Greek Stoic leader, the
aristocratic Panaetius of Rhodes (c.185-11 0 BC) and as a young man he
travelled there to study with his follower, Posidonius of Rhodes (135-51
BC), the greatest Stoic of his age. There is no better way to sum up Cicero's
Stoic natural law philosophy than by quoting what one of his followers called
his 'almost divine words'. Paraphrasing and developing the definition and
insight of Chrysippus, Cicero wrote:

There is a true law, right reason, agreeable to nature, known to all men, constant
and eternal, which calls to duty by its precepts, deters from evil by its prohibition
... This law cannot be departed from without guilt ... Nor is there one law at
Rome and another at Athens, one thing now and another afterward; but the same
law, unchanging and eternal, binds all races of man and all times; and there is one
common, as it were, master and ruler - God, the author, promulgator and mover
of this law. Whoever does not obey it departs from [his true] self, contemns the
nature of man and inflicts upon himself the greatest penalties ...

Cicero also contributed to Western thought a great anti-statist parable

which resounded through the centuries, a parable that revealed the nature of
rulers of state as nothing more than pirates writ large. Cicero told the story of
a pirate who was dragged into the court of Alexander the Great. When
Alexander denounced him for piracy and brigandage and asked the pirate
what impulse had led him to make the sea unsafe with his one little ship, the
pirate trenchantly replied, 'the same impulse which has led you [Alexander]
to make the whole world unsafe'.
But despite their important contributions to moral and legal philosophy,
neither the Stoics nor other Romans contributed anything else of significance
to economic thought. Roman law, however, heavily influenced and pervaded
later legal developments in the West. Roman private law elaborated, for the
first time in the West, the idea of property rights as absolute, with each owner
having the right to use his property as he saw fit. From this stemmed the right
to make contracts freely, with contracts interpreted as transfers of titles to
The first philosopher-economists: the Greeks 23

property. Some Roman jurists declared that property rights were required by
the natural law. The Romans also founded the law merchant, and Roman law
strongly influenced the common law of the English-speaking countries and
the civil law of the continent of Europe.

1.10 TaQism in ftn~ient China

The only other body of ancient thought worth mentioning is the schools of
political philosophy in ancient China. Though remarkable for its insights,
ancient Chinese thought had virtually no impact outside the isolated Chinese
Empire in later c'enturies, and so will be dealt with only briefly.
The three main schools of political thought: the Legalists, the Taoists, and
the Confucians, were established from the sixth to the fourth centuries BC.
Roughly, the Legalists, the latest of the three broad schools, simply believed
in maximal power to the state, and advised rulers how to increase that power.
The Taoists were the world's first libertarians, who believed in virtually no
interference by the state in economy or society, and the Confucians were
middle-of-the-roaders on this critical issue. The towering figure of Confucius
(551-479 BC), whose name was actually Ch'iu Chung-ni, was an erudite
man from an impoverished but aristocratic family of the fallen Yin dynasty,
who became Grand Marshal of the state of Sung. In practice, though far more
idealistic, Confucian thought differed little from the Legalists, since Confu-
cianism was largely dedicated to installing an educated philosophically minded
bureaucracy to rule in China.
By far the most interesting of the Chinese political philosophers were the
Taoists, founded by the immensely important but shadowy figure of Lao Tzu.
Little is known about Lao Tzu's life, but he was apparently a contemporary
and personal acquaintance of Confucius. Like the latter he came originally
from the state of Sung and was a descendant of lower aristocracy of the Yin
dynasty. Both men lived in a time of turmoil, wars and statism, but each
reacted very differently. For Lao Tzu worked out the view that the individual
and his happiness was the key unit of society. If social institutions hampered
the individual's flowering and his happiness, then those institutions should be
reduced or abolished altogether. To the individualist Lao Tzu, government,
with its 'laws and regulations more numerous than the hairs of an ox', was a
vicious oppressor of the individual, and 'more to be feared than fierce tigers'.
Government, in sum, must be limited to the smallest possible minimum;
'inaction' became the watchword for Lao Tzu, since only inaction of govern-
ment can permit the individual to flourish and achieve happiness. Any inter-
vention by government, he declared, would be counterproductive, and would
lead to confusion and turmoil. The first political economist to discern the
systemic effects of government intervention, Lao Tzu, after referring to the
common experience of mankind, came to his penetrating conclusion: 'The
24 Economic thought before Adam Smith

more artificial taboos and restrictions there are in the world, the more the
people are impoverished... The more that laws and regulations are given
prominence, the more thieves and robbers there will be' .
The worst of government interventions, according to Lao Tzu, was heavy
taxation and war. 'The people hunger because their superiors consume an
excess in taxation' and, 'where armies have been stationed, thorns and bram-
bles grow. After a great war, harsh years of famine are sure to follow' .
The wisest course is to keep the government simple and inactive, for then
the world 'stabilizes itself' .
As Lao Tzu put it: 'Therefore, the Sage says: I take no action yet the
people transform themselves, I favor quiescence and the people right them-
selves, I take no action and the people enrich themselves ... '
Deeply pessimistic, and seeing no hope for a mass movement to correct
oppressive government, Lao Tzu counselled the now familiar Taoist path of
withdrawal, retreat, and limitation of one's desires.
Two centuries later, Lao Tzu's great follower Chuang Tzu (369-e.286 BC)
built on the master's ideas of laissez-faire to push them to their logical
conclusion: individualist anarchism. The influential Chuang Tzu, a great
stylist who wrote in allegorical parables, was therefore the first anarchist in
the history of human thought. The highly learned Chuang Tzu was a native of
the state of Meng (now probably in Honan province), and also descended
from the old aristocracy. A minor official in his native state, Chuang Tzu's
fame spread far and wide throughout China, so much so that King Wei of the
Ch' u kingdom sent an emissary to Chuang Tzu bearing great gifts and urging
him to become the king's chief minister of state. Chuang Tzu's scornful
rejection of the king's offer is one of the great declarations in history on the
evils underlying the trappings of state power and the contrasting virtues of
the private life:

A thousand ounces of gold is indeed a great reward, and the office of chief
minister is truly an elevated position. But have you, sir, not seen the sacrificial ox
awaiting the sacrifices at the royal shrine of state? It is well cared for and fed for a
few years, caparisoned with rich brocades, so that it will be ready to be led into
the Great Temple. At that moment, even though it would gladly change places
with any solitary pig, can it do so? So, quick and be off with you! Don't sully me.
I would rather roam and idle about in a muddy ditch, at my own amusement, than
to be put under the restraints that the ruler would impose. I will never take any
official service, and thereby I will [be free] to satisfy my own purposes.

Chuang Tzu reiterated and embellished Lao Tzu's devotion to laissez-faire

and opposition to state rule: 'There has been such a thing as letting mankind
alone; there has never been such a thing as governing mankind [with suc-
cess]'. Chuang Tzu was also the first to work out the idea of 'spontaneous
The first philosopher-economists: the Greeks 25

order', independently discovered by Proudhon in the nineteenth century, and

developed by EA. von Hayek of the Austrian School in the twentieth. Thus,
Chuang Tzu: 'Good order results spontaneously when things are let alone'.
But while people in their 'natural freedom' can run their lives very well by
themselves, government rules and edicts distort that nature into an artificial
Procrustean bed. As Chuang Tzu wrote, 'The common people have a constant
nature; they spin and are clothed, till and are fed .. .it is what may be called
their "natural freedom"'. These people of natural freedom were born and
died themselves, suffered from no restrictions or restraints, and were neither
quarrelsome nor disorderly. If rulers were to establish rites and laws to
govern the people, 'it would indeed be no different from stretching the short
legs of the duck and trimming off ~he long legs of the heron' or 'haltering a
horse'. Such rules would not only be of no benefit, but would work great
harm. In short, Chuang Tzu concluded, the world 'does simply not need
governing; in fact it should not be governed'.
Chuang Tzu, moreover, was perhaps the first theorist to see the state as a
brigand writ large: 'A petty thief is put in jail. A great brigand becomes a
ruler of a State'. Thus, the only difference between state rulers and out-and-
out robber chieftains is the size of their depredations. This theme of ruler-as-
robber was to be repeated, as we have seen, by Cicero, and later by Christian
thinkers in the Middle Ages, though of course these were arrived at inde-
Taoist thought flourished for several centuries, culminating in the most
determinedly anarchistic thinker, Pao Ching-yen, who lived in the early fourth
century AD, and about whose life nothing is known. Elaborating on Chuang-
Tzu, Pao contrasted the idyllic ways of ancient times that had had no rulers
and no government with the misery inflicted by the rulers of the current age.
In the earliest days, wrote Pao 'there were no rulers and no officials. [People]
dug wells and drank, tilled fields and ate. When the sun rose, they went to
work; and when it set, they rested. Placidly going their ways with no encum-
brances, they grandly achieved their own fulfillment'. In the stateless age,
there was no warfare and no disorder:

Where knights and hosts could not be assembled there was no warfare afield .. .Ideas
of using power for advantage had not yet burgeoned. Disaster and disorder did not
occur. Shields and spears were not used; city walls and moats were not
built. .. People munched their food and disported themselves; they were carefree
and contented.

Into this idyll of peace and contentment, wrote Pao Ching-yen, there came
the violence and deceit instituted by the state. The history of government is
the history of violence, of the strong plundering the weak. Wicked tyrants
engage in orgies of violence; being rulers they 'could give free rein to all
26 Economic thought before Adam Smith

desires'. Furthermore, the government's institutionalization of violence meant

that the petty disorders of daily life would be greatly intensified and ex-
panded on a much larger scale. As Pao put it:

Disputes among the ordinary people are merely trivial matters, for what scope of
consequences can a contest of strength between ordinary fellows generate? They
have no spreading lands to arouse avarice ... they wield no authority through
which they can advance their struggle. Their power is not such that they can
assemble mass followings, and they command no awe that might quell [such
gatherings] by their opponents. How can they compare with a display of the royal
anger, which can deploy armies and move battalions, making people who hold no
enmities attack states that have done no wrong?

To the common charge that he has overlooked good and benevolent rulers,
Pao replied that the government itself is a violent exploitation of the weak by
the strong. The system itself is the problem, and the object of government is
not to benefit the people, but to control and plunder them. There is no ruler
who can compare in virtue with a condition of non-rule.
Pao Ching-yen also engaged in a masterful study in political psychology
by pointing out that the very existence of institutionalized violence by the
state generates imitative violence among the people. In a happy and stateless
world, declared Pao, the people would naturally turn to thoughts of good
order and not be interested in plundering their neighbours. But rulers oppress
and loot the people and 'make them toil without rest and wrest away things
from them endlessly.' In that way, theft and banditry are stimulated among
the unhappy people, and arms and armour, intended to pacify the public, are
stolen by bandits to intensify their plunder. 'All these things are brought
about because there are rulers.' The common idea, concluded Pao, that strong
government is needed to combat disorders among the people, commits the
serious error of confusing cause and effect.
The only Chinese with notable views in the more strictly economic realm
was the distinguished second century B.C. historian, Ssu-ma Ch'ien (145-
c.90 BC). Ch'ien was an advocate of laissez-faire, and pointed out that
minimal government made for abundance of food and clothing, as did the
abstinence of government from competing with private enterprise. This was
similar to the Taoist view, but Ch'ien, a worldly and sophisticated man,
dismissed the idea that people could solve the economic problem by reducing
desires to a minimum. People, Ch'ien maintained, preferred the best and
most attainable goods and services, as well as ease and comfort. Men are
therefore habitual seekers after wealth.
Since Ch'ien thought very little of the idea of limiting one's desires, he
was impelled, far more than the Taoists, to investigate and analyse free
The first philosopher-economists: the Greeks 27

market activities. He therefore saw that specialization and the division of

labour on the market produced goods and services in an orderly fashion:

Each man has only to be left to utilize his own abilities and exert his strength to
obtain what he wishes ... When each person works away at his own occupation and
delights in his own business, then like water flowing downward, goods will
naturally flow ceaselessly day and night without being summoned, and the people
will produce commodities without having been asked.

To Ch' ien, this was the natural outcome of the free market. 'Does this not
ally with reason? Is it not a natural result?' Furthermore, prices are regulated
on the market, since excessively cheap or dear prices tend to correct them-
selves and reach a proper level.
But if the free market is self-regulating, asked Ch'ien perceptively, 'what
need is there for government directives, mobilizations of labor, or periodic
assemblies?' What need indeed?
Ssu-ma Ch'ien also set forth the function of entrepreneurship on the mar-
ket. The entrepreneur accumulates wealth and functions by anticipating con-
ditions (i.e. forecasting) and acting accordingly. In short, he keeps 'a sharp
eye out for the opportunities of the times.'
Finally, Ch'ien was one of the world's first monetary theorists. He pointed
out that increased quantity and a debased quality of coinage by government
depreciates the value of money and makes prices rise. And he saw too that
government inherently tended to engage in this sort of inflation and debase-

1.11 Note
I. H.H. Joachim, Aristotle: The Nichomachean Ethics (Oxford: The Clarendon Press, 1951),
p. 50. Also see Moses I. Finley, 'Aristotle and Economic Analysis', in Studies in Ancient
Society (London: Routledge and Kegan Paul, 1974), pp. 32-40.
2 The Christian Middle Ages

2.1 The Roman law: property rights and laissez-faire 31

2.2 Early Christian attitudes towards merchants 32
2.3 The Carolingians and canon law 36
2.4 Canonists and Romanists at the University of Bologna 37
2.5 The canonist prohibition of usury 42
2.6 Theologians at the University of Paris 47
2.7 The philosopher-theologian: St Thomas Aquinas 51
2.8 Late thirteenth century scholastics: Franciscans and utility theory 59
2.9 Notes 64

The Christian Middle Ages 31

2.1 The Roman law: property rights and laissez-faire

One of the most powerful influences in the legal and political thought and
institutions of the Christian West during the Middle Ages was the Roman
law, derived from the Republic and Empire of ancient Rome. Roman law
classically developed in the first to the third centuries AD. Private law devel-
oped the theory of the absolute right of private property and of freedom of
trade and contract. While Roman public law theoretically allowed state inter-
ference in the life of the citizen, there was little such interference in the late
Republic and early Empire. Private property rights and laissez-faire were
therefore the fundamental heritage of the Roman law to later centuries, and
much of it was adopted by countries of the Christian West. Though the
Roman Empire collapsed in the fourth and fifth centuries, its legal heritage
continued, as embodied in two great collections of the Roman law: influential
in the West, the Theodosian Code, promulgated by the Emperor Theodosius
in 438 AD and in the East the great four-volume Corpus Juris Civilis, prom-
ulgated by the Byzantine Christian Emperor Justinian in the 530s.
Both collections emphasized strongly that the 'just' price (justum pretium)
was simply any price arrived at by free and voluntary bargaining between
buyer and seller. Each man has the right to do what he wants with his
property, and therefore has the right to make contracts to give away, buy, or
sell such property; hence, whatever price is freely arrived at is 'just'. Thus in
the Corpus, several leading Roman jurists of the third century quoted the
early second century jurist Pomponius in a classic expression of the morality
of laissez-faire: 'In buying and selling natural law permits the one party to
buy for less and the other to sell for more than the thing is worth; thus each
party is allowed to outwit the other'; and 'it is naturally permitted to parties
to circumvent each other in the price of buying and selling'. The only prob-
lem here is the odd phrase, 'the thing is worth', which assumes that there is
some value other than free bargaining that expresses some 'true worth', a
phrase that would prove to be an unfortunate harbinger of the future.
More specifically, the Theodosian Code was crystal-clear: any price set
by free and voluntary bargaining is just and legitimate, the only exception
being a contract made by children. Force or fraud, as infringements on
property rights, were of course considered illegal. The code held explicitly
that ignorance of the value of a good by either buyer or seller was insuffi-
cient ground for authorities to step in and rescind the voluntarily agreed
contract. The Theodosian Code was carried forward in western Europe, e.g.
the Visigothic law set forth in the sixth and seventh centuries, and the
Bavarian law of the early eighth century. Bavarian law added the explicit
provision that a buyer may not rescind a sale because he later decides that
the agreed price was too high. This laissez-faire aspect of the Theodosian
Code later became incorporated into Christian canon law by being included
32 Economic thought before Adam Smith

in the collection of 'capitularies' (decrees) by St Benedictus Diaconus in

the ninth century AD.
While the Justinian Corpus, promulgated in the East, was equally devoted
to laissez-faire, it included a minor element that was later to grow and justify
attacks upon free bargaining. As part of the Justinian discussion of how
courts can appraise property for payment of damages, the code mentioned
that if a seller has sold his property for less than half 'the just price', then he
suffers 'great loss' (laesio enormis), and the seller is then entitled either to
get back the difference between the original price and the just price from the
buyer, or else get his property back at that original price. This clause was
apparently meant only to apply to real estate and to compensations for dam-
ages, where authorities must somehow assess the 'true' price, and it had no
influence on the laws of the next centuries. But it was to yield unfortunate
effects in the future.

2.2 Early Christian attitudes towards merchants

Roman law was not the only influence on economic ideas in the Middle Ages.
Ambivalent attitudes in the early Christian tradition also proved highly im-
Economic matters were of course scarcely central to either the Old or New
Testament, and scattered economic pronouncements are contradictory or sub-
ject to ambivalent interpretation. Fulminations against excessive love of money
do not necessarily imply hostility to commerce or wealth. One remarkable
aspect of the Old Testament, however, is its repeated, almost pre-Calvinist,
extolling of work for its own sake. In contrast to the contemptuous attitude
toward labour of the Greek philosophers, the Old Testament is filled with
exhortations in favour of work: from the 'be fruitful and multiply' of Genesis
to 'Enjoy life in your toil at which you toil under the sun' of Ecclesiastes.
Oddly, these calls to labour are often accompanied by admonitions against
the accumulation of wealth. Later, in the second century BC, the Hebrew
scribe who wrote the Apocryphal book Ecclesiasticus goes so far as to extol
labour as a sacred calling. Manual workers, he writes, 'keep stable the fabric
of the world, and their prayer is in the practice of their trade'. Yet the pursuit
of money is condemned, and merchants are habitually treated with deep
suspicion: 'A merchant can hardly keep from wrong doing, and a tradesman
will not be declared innocent of sin'. And yet, in the same book of
Ecclesiasticus, the reader is instructed not to be ashamed of profit or success
in business.
The attitude of the early Christians, including Jesus and the Apostles,
toward work and trade was coloured by their intense expectation of the
imminent end of the world and of the coming of the Kingdom of God.
Obviously, if one expects the impending end of the world, one is inclined to
The Christian Middle Ages 33

have little patience for such activities as investing or accumulating wealth;

rather the tendency is to act as the lilies of the field, to follow Jesus, and
forget about mundane matters. It was in this context that we must understand
St Paul's famous 'the love of money is the root of all evil.'
By approximately 100 AD, however, the books of the New Testament
written by St John make it clear that the Christian Church had abandoned the
idea of the imminent end of the world. But the Hellenistic and the Gospel
heritage fused to lead the early Church Fathers into a retreatist view of the
world and its economic activities, combined with fulminations against wealth
and merchants who tend to amass such wealth. The Church Fathers railed
against mercantile activities as necessarily stamped with the sin of greed, and
as almost always accompanied by deceit and fraud. Leading the parade was
the mystical and apocalyptic Tertullian (160-240), a prominent Carthaginian
lawyer who converted late in life to Christianity and eventually formed his
own heretical sect. To Tertullian, attack on merchants and money-making
was part and parcel of a general philippic against the secular world, which he
expected at any moment to founder on the shoals of excess population, so
that the earth would soon suffer from 'epidemics, famines, wars, and the
earth's opening to swallow whole cities' as a grisly solution to the overpopu-
lation problem.
Two centuries later, the fiery St Jerome (c.340-420), educated in Rome but
also influenced by the eastern Fathers, took up the theme, proclaiming the
fallacy that in trade, one man's gain must be achieved by means of the other
man's loss: 'All riches come from iniquity, and unless one has lost, another
cannot gain. Hence that common opinion seems to me to be very true, 'the
rich man is unjust, or the heir of an unjust one". And yet there was another,
contradictory strain even in Jerome, who also declared that 'A wise man with
riches has greater glory than one who is wise only', for he can accomplish
more good things; 'wealth is not an obstacle to the rich man who uses it
Probably the most intelligent attitude toward wealth and money-making
among the early Church Fathers was that of the Athenian-born eastern Father
Clement of Alexandria (c.150-215). While Clement counselled that property
be used for the good of the community, he endorsed private property and the
accumulation of wealth. He attacked as foolish the ascetic ideal of divesting
oneself of one's possessions. As Clement wisely put it, employing a natural
law theme:

We must not cast away riches which can benefit our neighbor. Possessions were
made to be possessed; goods are called goods because they do good, and they
have been provided by God for the good of men: they are at hand and serve as the
material, the instruments for a good use in the hand of him who knows how to use
34 Economic thought before Adam Smith

Clement also took a hard-nosed attitude toward the rootless poor. If living
without possessions was so desirable, he pointed out,

then that whole swarm of proletarians, derelicts and beggars who live from hand
to mouth, all those wretched cast out upon the streets, though they live in igno-
rance of God and of his justice, would be the most blessed and the most religious
and the only candidates for eternal life simply because they are penniless ...

The early Church Fathers culminated in the great Saint Augustine (354-
430) who,Iiving at the time of the sack of Rome in 410 and of the collapse of
the Roman Empire, had to look ahead to a post-ancient world which he was
greatly to influence. Born in Numidia in Africa, Aurelius Augustinus was
educated in Carthage, and became a professor of rhetoric in Milan. Baptized
a Christian at the age of 32, St Augustine became bishop of Hippo in his
native North Africa. The Roman Empire under Constantine had embraced
Christianity a century earlier, and Augustine wrote his great work, The City
of God, as a rebuttal to the charge that the embrace of Christianity had
resulted in the fall of Rome.
Augustine's economic views were scattered throughout The City of God
and his other highly influential writings. But he definitely, and presumably
independently of Aristotle, arrived at the view that people's payments for
goods, the valuation they placed on them, was determined by their own needs
rather than by any more objective criterion or by their rank in the order of
nature. This was at least the basis of the later Austrian theory of subjective
value. He also pointed out that it was the common desire of all men to buy
cheap and to sell dear.
Furthermore, Augustine was the first Church Father to have a positive
attitude towards the role of the merchant. Rebutting the common patristic
charges against the merchants, Augustine pointed out that they perform a
beneficial service by transporting goods over great distances and selling them
to the consumer. Since, according to Christian principle, 'the labourer is
worthy of his hire', then the merchant too deserved compensation for his
activities and labour.
To the common charge of endemic deceit and fraud in the mercantile
trades, Augustine cogently replied that any such lies and perjuries were the
fault not of the trade but of the trader himself. Such sins originated in the
iniquity of the person, not in his occupation. After all, Augustine pointed out,
shoemakers and farmers are also capable of lies and perjuries, and yet the
Church Fathers had not condemned their occupations as being per se evil.
Clearing the merchants of the stain of inherent evil proved enormously
influential in the following centuries, and was quoted time and again in the
flowering of Christian thought in the twelfth and thirteenth centuries.
The Christian Middle Ages 35

A less tangible but still important contribution to social thought was St

Augustine's recasting of the ancient world's view of the human personality.
To the Greek philosophers, the individual personality was to be moulded to
conform to the needs and desires of the polis. Dictation by the polis necessar-
ily meant a static· society, with discouragement directed towards any innovat-
ing entrepreneurs trying to break out of the contemporary mould. But St
Augustine's stress was on the individual's personality unfolding itself and
therefore progressing over time. Hence Augustine's profound emphasis on
the individual at least set the stage indirectly for an attitude favourable to
innovation, economic growth and development. That aspect of Augustine's
thought, however, was not really stressed by the thirteenth century Christian
theologians and philosophers who built on Augustine's thought. It is ironic
that the man who set the stage for optimism and a theory of human progress
should, on his death-bed, find the barbarian hordes besieging his beloved city
of Hippo.
If St Augustine looked benignly on the role of the merchant, he was also
favourable, though not as warmly, towards the social role of rulers of state.
On the one hand, Augustine took up and expanded Cicero's parable demon-
strating that Alexander the Great was simply a pirate writ large, and that the
state is nothing but a large-scale and settled robber band. In his famous City
of God, Augustine asks:

And so if justice is left out, what are kingdoms except great robber bands? For
what are robber bands except little kingdoms? The band also is a group of men
governed by the orders of a leader, bound by a social compact, and its booty is
divided according to a law agreed upon. If by repeatedly adding desperate men
this plague grows to the point where it holds territory and establishes a fixed seat,
seizes cities and subdues people, then it more conspicuously assumes the name of
kingdom, and this name is now openly granted to it, not for any subtraction of
cupidity, but by addition of impunity. For it was an elegant and true reply that was
made to Alexander the Great by a certain pirate whom he had captured. When the
king asked him what he was thinking of, that he should molest the sea, he said
with defiant independence: 'The same as you when you molest the world! Since I
do this with a little ship I am called a pirate. You do it with a great fleet and are
called emperor'. 1

Yet Augustine ends by approving the role of the state, even though it is a
robber band on a large scale. For while he stressed the individual rather than
the polis, in pre-Calvinist fashion Augustine emphasized the wickedness and
depravity of man. In this fallen, wicked and sinful world, state rule, though
unpleasant and coercive, becomes necessary. Hence, Augustine supported the
forcible crushing by the Christian Church in North Africa of the Donatist
heresy, which indeed believed, in contrast to Augustine, that all kings were
necessarily evil.
36 Economic thought before Adam Smith

The likening of the head of state to a large-scale brigand, however, was

resurrected in its original anti-state context by the great Pope Gregory VII, in
the course of his struggle with the kings of Europe over his Gregorian
reforms in the late eleventh century. This strain of bitter anti-statism, then,
emerges from time to time in the early Christian era and in the Middle Ages.

2.3 The Carolingians and canon law

'Canon law' was the law governing the Church, and during the early Chris-
tian era and the Middle Ages the intertwining of Church and state often
meant that canon law and state law were one and the same. Early canon law
consisted of papal decretals, decrees of church councils, and the writings of
the Church Fathers. We have seen that later canon law also incorporated
much of the Roman law. But canon law also included something else basi-
cally pernicious: the decrees and regulations ('capitularies') of the Carolingian
Empire in the latter eighth and ninth centuries.
From the fifth to the tenth centuries, the economic and political chaos of
the Dark Ages prevailed throughout Europe, and there was consequently little
or no room for the development of political, legal or economic thought. The
only exception was the activities of the Carolingian Empire, which bur-
geoned in western Europe. The most important Carolingian Emperor was
Charlemagne (742-814) and his rule devolved on to his successors during the
remainder of the ninth century. In capitulary after capitulary, Charlemagne
and his successors laid down detailed regulations for every aspect of eco-
nomic, political and religious life throughout the empire. Many of these
regulations became incorporated into the canon law of later centuries, thereby
remaining influential well after the crumbling of the Carolingian Empire
Charlemagne built his despotic network of regulations on a shaky founda-
tion. Thus the important Church council of Nicaea (325) had forbidden any
clergymen from engaging in any economic activities leading to 'shameful
gain' (turpe lucrum). In his council at Nijmegen (806) Charlemagne revived,
greatly broadened and imposed the old doctrine of turpe lucrum. But now the
prohibition was extended from the clergy to everyone, and the definition
broadened from fraud to all greed and avarice, and included any disobedience
of Charlemagne's extensive price regulations. Any market deviations from
these fixed prices were accused of being profiteering by either buyers or
sellers and hence turpe lucrum. As a corollary, all speculative buying and
selling in foodstuffs was prohibited. Moreover, in foreshadowing the English
common law prohibition of 'forestalling', any sale of goods outside and at
higher prices than the regular markets was prohibited. Since the English
common law was motivated, not by a misguided attempt to aid the poor but
in order to confer monopoly privileges on local owners of market sites, it is
The Christian Middle Ages 37

highly probable that Charlemagne, too, was trying to cartelize markets and
confer privileges on market owners.
Every arbitrary price decree of the Carolingian officialdom was of course
revered by the Carolingians as the 'just price.' Probably this coerced price
was often near what had been a customary or current price in the neighbour-
hood; otherwise it would be difficult to conceive how the Carolingian offi-
cials would discover what price was supposed to be just. But this meant a
futile and uneconomic attempt to freeze all prices on the basis of some past
market status quo.
The problem, then, is that later canon law incorporated the idea of the just
price as being the state-decreed price. The banning of any price higher than
the current market price was reimposed by the late Carolingian Emperor
Carloman in 884, and incorporated into the canon law collection of Regino of
Prum in 900, and over a century later into that of Burchard of Worms.
Remarkably, the two contradictory legal strains: the laissez-faire theme of
the Theodosian Code, and the statist Carolingian motif, both found their way
into the great collection at the basis of the medieval discipline of ther canon
law: that of Bishop Ivo of Chartres, at the turn of the twelfth century. There,
in the same collection, we find the view that the just price is any price
voluntarily arrived at .by buyer and seller, and also the contradictory view
that the just price is one decreed by the state, especially if it be the common
pri~e in general markets.

2.4 Canonists and Romanists at the University of Bologna

The High Middle Ages were established by the commercial revolution of the
eleventh to thirteenth centuries, in which trade, production and finance flour-
ished, living standards rose markedly, and the institutions of commercial
capitalism developed in western Europe. With the advent of economic growth
and prosperity, canon and Roman law, learning and social thought, also
began to flourish once again.
The fountainhead and great centre of both canon and Roman law studies
during the High Middle Ages was the University of Bologna, in Italy, flour-
ishing from the early twelfth century to the latter part of the thirteenth.
During those two centuries, both canon and Roman law, including the Justinian
Code, were revived at Bologna, influenced each other, and penetrated to the
rest of western Europe.
The great and definitive collection of canon law, the Decretum, was pub-
lished around the year 1140 by the Italian monk, Johannes Gratian, who
founded canon law studies at the University of Bologna. The Decretum was
the definitive canon law work from that point on, and for the remainder of the
twelfth century Bolognese scholars, known as the decretists, elaborated, dis-
cussed, and wrote glosses on Gratian's work.
38 Economic thought before Adam Smith

Gratian himself and his early glossators took a traditional zealous anti-
merchant position. Speculation, buying cheap to sell dear - purely mercantile
activities - were turpe lucrum and inevitably involved fraud.
The first decretist to begin to take an intelligent position on the activities
of the merchant was Rufinus, a professor at Bologna who later became
bishop of Assisi and then archbishop of Sorrento. In his Summa (1157-59)
to the Decretum, Rufinus pointed out that artisans and craftsmen could buy
materials cheaply, work on them and transform them, and then sell the
product at a higher price. This form of buying cheap and selling dear was
justified by the craftsmen's expenses and labour, and is permissible even to
the clergy as well as to the laity. However, another activity, practised by the
pure merchant or speculator, who buys cheap and sells dear without trans-
forming the product is, according to Rufinus, absolutely forbidden to the
clergy. The lay merchant, however, could honourably engage in these trans-
actions provided that he had either made heavy expenditures or was fa-
tigued by hard labour. But a pure entrepreneurial cheap purchase to be
followed by a sale when market prices were higher was condemned uncon-
ditionally by Rufinus.
This partial rehabilitation of the merchant by the decretists was included in
the important Summa of 1188 of Huguccio, professor at Bologna, later cho-
sen bishop of Ferrara. Huguccio repeated the views of Rufinus, but shifted
the justification of the merchant from labour or expenses to actions that
provide for the needs of the merchant's family. Huguccio's stress, then, was
not on objective costs but on the subjective intentions of the merchant,
supposing that they could be discovered: was it mere greed or was it a desire
to fulfil his family's needs? Clearly, Huguccio allowed considerable room for
mercantile activities.
Moreover, Huguccio began a radical reconstruction of Patristic teachings
about private property. From the time of Huguccio, private property was to
be considered a sacrosanct right derived from the natural law. The property of
individuals and communities was, at least in principle, supposed to be free
from arbitrary invasion on the part of the state. As 'moderator and arbiter' of
his own goods, an individual owner could use and dispose of them as he saw
fit, provided that he did not violate general legal rules. A ruler could only
expropriate the property of an innocent subject if 'public necessity' required
it. This, of course, was a hole in the system of rights, since 'public necessity'
could be and was an elastic concept. But this concept of private property was
an enormous advance over patristic teachings.
After the late twelfth century, the decretist movement in canon law gave
way to the decretalists, who based themselves on a stream of papal edicts or
decretals, from the late twelfth to the thirteenth century. Since the pope is
supreme in the Catholic Church, the decretals pronounced by him and his
The Christian Middle Ages 39

Vatican curia automatically became incorporated into the body of canon

law. In this way, canon law came to differ from that of Gratian and the
Decretists, who built the law chiefly on ancient sources. But the new decretals
were scarcely arbitrary; they built on and elaborated previous canon law.
The continuity of the building process was greatly aided by the fact that
several of these popes were former Bolognese. Thus, Pope Alexander III
(Roland Bandinelli), who initiated the new decretal process and who en-
joyed a long papal reign from 1159 to 1181, had studied both law and
theology at Bologna, was probably a professor there, and had direct contact
with the great Gratian. A distinguished legal scholar, who himself had
written an early Summa to Gratian's Decretum, Alexander became cardinal
and chancellor before being elected to the papacy. Another significant papal
decretalist, Pope Innocent II (Lothaire de Segni), who reigned from 1198 to
1216, had studied canon law under Huguccio at Bologna. Finally, Pope
Gregory IX (Ugolino de Segni), a pontiff from 1227 to 1241, commis-
sioned and published the momentous Decretals in 1234, incorporating
Gratian's Decretum of a century before in addition to the various papal
decretals. Gregory IX's Decretals became the standard work of canon law
from that point on.
The decretalists had a far more favourable attitude towards merchants and
the free market than had the early decretists. In the first place, instead of the
negative patristic attitude toward merchants and trade, the decretalists, begin-
ning with Pope Alexander III and continuing through Gregory IX, incorpo-
rated the free market attitude of the Roman law. Unfortunately, it was not the
pure laissezjaire attitude of the Theodosian or even Justinian law. For when
the Justinian Code came to Bologna and western Europe at the beginning of
the twelfth century, the French author of the Brachylogus took up the laesio
enormis principle of the Justinian Code and greatly changed its meaning.
Instead of applying the concept of 'just price' differing from the actual price
to the assessment of damages as in the Justinian Code, the Brachylogus
expanded the concept from real estate to all goods, and from assessing
damages to actual sales. In the hands of the Brachylogus, if any sale, even a
voluntary one, had been made at less than half the 'just price', the seller
could present the buyer with the choice: either pay me the difference between
the sale price and the just price, or else rescind the contract, with the buyer
returning the goods and the seller returning the payment. It has been pointed
out that this was not a cartelizing device, since neither third parties nor the
state could step in to enforce laesio enormis; the enforcement had to be done
on a charge made by the seller himself.
The Roman law developing during the twelfth and thirteenth centuries was
largely the product of the University of Bologna, where Roman law studies
had been founded by Irnerius in the late eleventh century. In the mid-twelfth
40 Economic thought before Adam Smith

century, the Bolognese Roman jurists began to incorporate the broader con-
cept of laesio enormis of the Brachylogus. About 1150, the Proven~al Lo
Codi, a popular adaptation of a recent Bolognese Summa, added another
fateful expansion of laesio enormis. For the first time, this Proven~al work
included buyers as well as sellers as suffering from laesio enormis, when the
sale price was significantly higher than the just price. In the Lo Codi, if a
buyer had paid more than twice the true value, or just price, of a product, then
the seller had the option either to pay the buyer the difference between the
just and the sale price, or else rescind the contract. Remarkably, when the Lo
Codi was translated back into Latin, this new extended restriction on laissez-
faire was added to the Roman law, particularly by Albericus, professor of
Roman law at Bologna, in his canon law collection at the end of the twelfth
The burgeoning principle of laesio enormis reached its final extension in
the late twelfth century work of the Bolognese-trained Petrus Placentinus.
Placentinus lowered the maximum permissible price to 1.5 times the just
price, beyond which the principle of laesio enormis went into effect. This
final expansion was incorporated into the works of the three great Bolognese
Roman law professors of the thirteenth century: Azo (c.1210); Azo's highly
influential student and follower Accursius (c.l228-60), a native of Florence;
and the culmination of the Bolognese school in Odofredus, in the mid-
thirteenth century.
While it is true that the twelfth and thirteenth century Romanists took the
trivial concept of laesio enormis and made it a significant restriction on
freedom of bargaining and laissez-faire, at least by the late twelfth century
they also made clear that there was to be full freedom of bargaining and
freedom to outwit the other, within the matrix of laesio enormis. The
decretalists, beginning with Pope Alexander III, incorporated much of this
developing Roman law. This meant that Church law now included not only
the patristic fulminations against merchants per se, but also the contrasting
Romanist tradition of full freedom of bargaining within the laesio enormis
matrix. The decretalists reached their culmination, after building on and
glossing the Decretals of Gregory IX, in the works of Cardinal Henricus
Hostiensis de Segusio, first in the late 1250s and finally in 1271, the year of
his death. Hostiensis had studied canon and Roman law at Bologna, had
taught in England and France and was cardinal-archbishop of Ostia.
The decretalists justified speculative buying and selling, freeing it from the
sin of turpe lucrum, by adopting and expanding the Huguccian line that
speculation was permissible if the speculator was acting to fulfil the needs of
his family. In the Gloss of the French Dominican canonist William of Rennes
(c. 1250), this area of freedom was broadened still further. A merchant's or
speculator's actions were not considered sinful unless he was driven by 'a
The Christian Middle Ages 41

wanton desire for having temporal riches, not for necessary use or utility, but
for curiosity, so that the fancy is charmed by such, just as a magpie or a crow
is enticed by coins, which they discover and hide away'. Surely this kind of
stricture, which can only apply to a few persons in the real world, had come
very far from the patristic denunciations of merchants and traders per se.
Another loosening of restrictions came with Alanus Anglicus, an English-
born professor of canon law at Bologna, writing in the first two decades of
the thirteenth century. Alanus declared that no turpe lucrum (or usury, for that
matter) could exist if the future price of a good was uncertain in the mind of
the merchant. Not only is uncertainty always present in the market, but also it
is impossible for outside courts or authorities to prove that a merchant did not
feel uncertain when he bought or sold. In effect, all turpe lucrum restrictions
on trade or speculation had now been removed.
In analysing business profits, the later thirteenth century canonists added
to the older justification of profit as covering labour plus expenses. This was
the element of risk, present in every business situation. Increase of price as a
consequence of risk was first justified in the prominent canon law commen-
taries of Pope Innocent IV (Sinibaldo Fieschi), published between 1246 and
1253. Before becoming pope, Innocent had been a native of Genoa and a
student of Roman and canon law at Bologna, a professor of Roman law at
that university, and finally a cardinal and a famous statesman.
If transactions were to be sinful and illegal beyond a certain zone above or
below the just price, then the Church and the authorities had to find some
way of figuring out what the just price was supposed to be. This had not been
a problem before the twelfth and thirteenth centuries, since the doctrine of
laesio enormis had not really been applied before. The Romanist and canonist
solution, reminiscent of Carolingian doctrine, was that the just price was the
going, current, common market price (the communis aestimatio). This meant
either the competitive, general market price as contrasted to single isolated
transactions, or it could refer to prices fixed by governments or government-
privileged guilds, since such controls, by strict legality, would be the going
de jure price. Perhaps it would have been beneath the dignity of these jurists
to sanction or even recognize any black market prices that violated such
Placentinus used this criterion in late twelfth century Roman jurisprudence,
as did in particular Azo in the early thirteenth. Azo was liberal enough to refer
to the price of a sale equalling that of any other comparable sale as being a 'just
price', but Accursius, and after him Odofredus, explicitly referred to the gen-
eral or common market price as being the standard of justice. As Accursius put
it, 'a thing was valued at that for which it could be commonly sold'.
The canon lawyers adopted the same criterion for the just price. Influenced
by Carolingian practice, and by hints from the sixth century Rule of St
42 Economic thought before Adam Smith

Benedict, the late twelfth century canonist and student of Gratian, Simon of
Bosignano, first described the true value of goods as the price for which they
commonly sold. The same position was then taken by the decretalists in the
thirteenth century. Canonists and Romanists alike were now agreed on the
common price of a good as the just one.
But still the developed canonists of the thirteenth century had a problem.
On the one hand, they had adopted the Roman law view that all free bargain-
ing was legitimate except for a zone more than a certain degree above or
beyond the 'just price', which they held to be the going, common market
price. But on the other hand, they had inherited from the Church Fathers and
the earlier decretists a hostility toward mercantile, especially speculative,
transactions. How could they square this contradiction?
Partly, as we have seen, they were able to weaken the extent of shameful
speculation. Also, from the thirteenth century on, the Church and its canon
lawyers largely solved the problem through the highly sensible doctrine of
the 'two forums' over which the Church exercised jurisdiction. The 'external
forum' - the jus fori - judged the social activities of Christians in public
ecclesiastical courts. There the courts judged offences against the Church and
her common law in much the same procedures as the secular courts. On the
other hand, the 'internal forum' - the jus poli - was the confessional, in
which the priest judged individual Christians on the basis of their personal
relation to God. The two forums were separate and distinct, the respective
judgements on two different levels. While the Church presumed to rule over
both, the one was external and social, the other private and personal.
The doctrine of the two forums enabled the canonists to resolve the seem-
ing contradiction in canon law. The free-bargaining, laesio enormis, common
market principle was the realm of external law and the open court, where, in
other words, a roughly free market could prevail. On the other hand, the
strictures against mercantile profits going beyond labour, costs, and risk were
a matter not for the state and external law, but for conscience in the confes-
sional. Even more obviously for the confessional alone were the injunctions
against trade or speculation based on avarice as going beyond honourable
need to support one's family. Clearly, only the man himself, internally in his
conscience, could know his intentions; they were scarcely observable by
external law.

2.5 The canonist prohibition of usury

The great relaxation of moral and legal restrictions and prohibitions against
trade that permeated the canonists and Romanists in the Middle Ages, unfor-
tunately did not apply to the stern prohibitions levelled against usury. Mod-
ern people think of 'usury' as very high interest rates charged on a loan, but
this was by no means the meaning until recent times. Classically 'usury'
The Christian Middle Ages 43

means any rate whatsoever charged on a loan, no matter how low. The
prohibition of usury was a prohibition against any interest charge on a loan.
With one exception, no one in the ancient world - whether in Greece,
China, India or Mesopotamia - prohibited interest. That exception was the
Hebrews who, in an expression of narrow tribal morality, permitted charging
interest to non-Jews but prohibited it among Jews.
The fierce medieval Christian assault on usury is decidedly odd. For one
thing, there is nothing in the Gospels or the early Fathers, despite their
hostility to trade, that can be construed as urging the prohibition of usury. In
fact, the parable of the talents in Matthew (25: 14-30) can easily be taken as
approval for earning interest on commercial loans. The campaign against
usury begins with the first Church council, in Nicaea in 325, which itself
prohibited only the clergy from charging interest on a loan. But the Nicene
council grabbed on to one phrase of Psalm 14 in the Old Testament, 'Lord,
who shall dwell in thy tabernacle? He that hath not put out his money to
usury', and this was to become the favourite - and virtually the only -
biblical text against usury during the Middle Ages. The Nicene injunctions
were repeated in later fourth century councils at Elvira in Spain' and at
Carthage, and then in the fifth century Pope Leo I extended the prohibition to
the laity as well, condemning lay usurers as indulging in turpe lurcum.
Several local councils in Gaul in the seventh century repeated Leo's denun-
ciation, as did Pope Adrian and several English church synods in the eighth
But the prohibition of all usury enters secular legislation for the first time
in the all-embracing totalitarian regime of the Emperor Charlemagne. At the
fateful imperial synod of Aachen in 789, Charlemagne prohibited usury to
everyone in his realm, lay and cleric alike. The prohibition was renewed and
elaborated in the later council at Nijmegen in 806, where usury is defined for
the first time, as an exchange where 'more is demanded back than what is
given'. So that, from the time of Charlemagne, usury was intensely held to be
a special and particularly malevolent form of turpe lucrum, and attempts to
relax this ban were fiercely resisted. The sweeping definition, 'more de-
manded than what is given', was repeated intact by canonists from the tenth
century Regino of Prum through Ivo of Chartres to Gratian.
But oddly, though the hostility towards usury continued and was indeed
greatly strengthened among the canonists, the explicit basis for the antago-
nism changed considerably. During the first centuries of the Christian era,
usury was shameful as a form of avarice or lack of charity; it was not yet
considered a vicious sin against justice. As commerce began to revive and
flourish in eleventh century Europe, indeed, denouncing interest-taking as a
form of lack of charity began to be considered wide of the mark, since charity
had little to do with commercial loans. It was the Italian monk St Anselm of
44 Economic thought before Adam Smith

Canterbury (1033-1109) who first shifted the ground of attack to rail against
usury as 'theft'. This new doctrine was developed by St Anselm's disciple
Anselm of Lucca, a fellow Italian and native of a city with a burgeoning
textile industry. In his collection of canons, made about 1066, Anselm of
Lucca explicitly condemned usury as theft and a sin against the Seventh
Commandment, and demanded restitution of usuries to the borrower as 'sto-
len goods'. This expansion of 'theft' to a voluntary contract where no coer-
cion was used was surely bizarre, and yet this outrageous new concept caught
hold and was repeated by Hugh of St Victor (1096-1141) and by the collec-
tions of Ivo of Chartres.
In 1139, the second lateran council of the Church explicitly prohibited
usury to all men, laity as well as clergy, and held all usurers to be infamous.
The council vaguely declared that the Old and New Testaments mandated
such a prohibition, but gave no explicit reference. Nine years later, Pope
Eugene III moved against the common practice of monasteries charging
interest on mortgages.
Finally, the canon law reached mature form with the Decretum of Gratian.
Gratian hammers away against usury with whatever weapons he can find
from Psalm 14 to the new view that usury is theft and therefore requires
restitution. Expounding on the strict prohibition of usury, Gratian extended it
to the loan of goods as well as money, so long as anything is demanded
beyond the principal, and he expressly declared that, in such a case, the 'just
price' was not the common market price but zero, i.e. the exact equivalent of
the goods or money lent.
The great decretalist Pope Alexander III might have been inclined towards
a free market in other areas, but on the usury question he merely deepened
and extended the ban, applying the condemnation to charging higher prices
for credit than for cash sales. This practice was denounced as implicit usury,
even though it was not explicitly interest on a loan. The third lateran council,
presided over by Pope Alexander III in 1179, condemned usury, and excom-
municated and denied Christian burial to all manifest usurers. The next pope,
Urban III (1185-87), in his decretal Consoluit, dredged up a previously
unused citation from Jesus, 'Lend freely, hoping nothing thereby' (Luke 6:
35), which from then on became the centrepiece of the theological condem-
nation of usury as a mortal sin; and not only that: even the very hope of
obtaining usury was supposed to be a virtually equivalent sin.
So pervasive was the canonist obsession with usury that Gratian, his pre-
decessors and his successors, largely worked out their theories of sale, profit,
or just price in terms of whether or not any particular transaction fell under
the dread rubric of 'usury'. Thus, late twelfth century decretists like Simon of
Bosignano in 1179 and the great Huguccio in 1188, maintained the strict
prohibition of any interest charged on a loan as usury, while allowing the
The Christian Middle Ages 45

renting of a good or buying cheap in order to sell dear as not being cases of
usury. Huguccio's tortured moral distinction maintained that a commodatum
- a rental contract that transferred only the use of a good - was somehow
morally very different from a mutuum - a pure loan where ownership was
transferred for a time. Charging for a lease, a commodatum was all right
because the owner retains ownership and charges for the use of his own
good; but somehow it becomes sinful when a lender charges for the use of a
good which he no longer (temporarily) owns. Profits on trade, too, could be
legitimate and lawful as a reward for risk, but interest on a loan - where the
risk is borne by the borrower and not the lender - was always usury.
The later decretalists, attempting to combat practices of merchants in dis-
guising usury in various contracts, pressed on to condemn such contracts as
'implicit usury', provided, as we have seen in treatment of sales contracts,
that there is no uncertainty on the future price in the minds of buyer and
seller. The early thirteenth century canonist Alanus Anglicus declared that if
there was uncertainty in such a contract, and buyer and seller stood equal
chance to gain or lose, usury did not exist. Providing the first real, if small,
loophole in the sweeping prohibition against usury, Anglicus explained that
this form of implicit usury could exist only in the mind and could not be
subject to legal enforcement. This uncertainty loophole was widened slightly
in the Decretals of Gregory IX.
On the other hand, the canonists persisted in cracking down on evasions of
the usury ban which the market kept creatively inventing. Contracts provid-
ing for deferred payment on a sale were treated with suspicion, and very high
prices in such a contract were taken by the canonists to prove intent to
commit usury beyond a reasonable doubt. The Decretals also went so far as
to condemn creditors charging interest for loans to travelling merchants, even
though the canonists realized that the interest was a direct compensation for
risks. Although canonists after Innocent IV began to talk of risks justifying
profits, so that a profit on risky investments was considered perfectly justi-
fied, any interest on a pure loan (or mutuum) was condemned as usury despite
reasonably mitigating circumstances.
The usury prohibition was the tragic flaw in the economic views of medi-
eval jurists and theologians. The prohibition was economically irrational,
depriving marginal borrowers and high credit risks of any borrowed capital
whatever. It had no groundwork in natural law and virtually none in Old or
New Testament teachings. And yet it was clung to fiercely throughout the
Middle Ages, so that jurists and theologians had to engage in ingenious and
artful twists in reasoning in order to make exceptions from the prohibition
and to accommodate the growing practice of lending money and charging
interest on a loan. And yet the medievalists, especially the later philosophers
and theologians, had a fascinating and important point: for what was the
46 Economic thought before Adam Smith

moral or economic justification for interest on a pure loan? As we will see,

medieval scholastics came to understand full well the economic and moral
justifications for almost every aspect of interest charges: as an implicit profit
on risk, as an opportunity foregone for making profits on investments, and
many others. But why is there still interest charged on a simple, riskless, non-
opportunity-foregone loan? That answer was not to come fully until the
Austrian School of the late nineteenth century. Where the scholastics were
gravely lacking was in not realizing that if interest was paid as well as
charged voluntarily, that in itself is sufficient moral justification. And further
that there must have been an economic explanation, even though economic
science had not yet discovered it.
The first systematic breach in the usury prohibition came with the last of
the thirteenth century canonists, Cardinal Hostiensis. In addition to having
been a distinguished law professor, Hostiensis was a worldly cosmopolite,
having been the ambassador of Henry III to his friend Pope Innocent IV. First
Hostiensis reverted to the old milder tradition that usury is uncharitable, but
not a sin against justice. Then he listed no less than 13 instances in which the
usury prohibition could be broken and interest charged on a loan. One is as
surety required by the guarantor of a loan; another that a seller may charge a
higher price for a good sold on credit than for cash, provided that there is
uncertainty (as indeed there always is) about the future price of the commod-
ity. Another important exception allowed a creditor to write a penalty clause
into a loan so that the debtor would have to pay a penalty above the principal
if he did not repay on the date due. This of course paved the way for covert
agreement on both sides to delay payment so as to allow the 'penalty'.
Another exception was that the creditor might charge for labour which he
undertook in making the particular loan.
These were all some form of penalty or special payment. But, in addition,
Hostiensis provided the first path-breaking argument for charging a rate of
interest on a loan from the very beginning, a charge that does not involve
delay or guarantees. This is lucrum cessans (profit ceasing), a legitimate
interest charge by the creditor to compensate him for profit foregone in
investing the money himself. In short, lucrum cessans anticipated the Aus-
trian concept of opportunity cost, of income foregone, and applied it to the
charging of interest. Unfortunately, however, Cardinal Hostiensis's use of
lucrum cessans was limited to non-habitual lenders who lend money out of
charity to a debtor. Thus lenders could not be in the business of charging
money on a loan, even on the ground of lucrum cessans.
Another exception made by Hostiensis also provided an open channel for
the charging of interest on loans. He allowed the debtor to give a free gift to
the creditor, so long as the' gift' was not required by the creditor. But in that
case debtors, in particular Florentine bankers who received deposits, felt
The Christian Middle Ages 47

obliged to make 'gifts' to their depositors, else the depositors would shift
their funds to competitors who habitually made such 'gifts'. The making of a
fake gift became an important mechanism in allowing the de facto charging
of interest.

2.6 Theologians at the University of Paris

Theology, in the Middle Ages, was the queen of the 'sciences': i.e. the
intellectual disciplines offering truth and wisdom. But theology had fallen on
bad times during the Dark Ages, and the Roman and canon lawyers were left
to apply ethical systems to law and human affairs. Theology began to flourish
again in the early twelfth century at the University of Paris, under the famous
Peter Abelard. From then on, Paris was the equivalent centre for theology
during the High Middle Ages that Bologna was for Roman and canon law.
But during the remainder of the twelfth century, the theologians were content
to ponder and work out metaphysical and ontological questions and to leave
social ethics to the jurists. It was typical of twelfth century theologians when
Peter of Poitiers, later to become the dominant Regent of theology at the
cathedral school of Notre Dame in Paris, declared that such doubtful ques-
tions as usury should be left to the canon lawyers.
After the turn of the thirteenth century, however, when canon and Roman
law theories were already far advanced, the new university-trained philoso-
pher-theologians turned to problems of social ethics with a will. Even before
the turn of the thirteenth century, such influential theologians at the Univer-
sity of Paris as Radulphus Ardens and the Englishman - later Cardinal -
Stephen Langton, began to write on problems of justice. Unfortunately, in
dealing with the concept of 'just price', the theologians did not follow the
Romanists and canonists in the sensible view that the free bargaining or
market price is legitimate so long as it stays within a broad zone of the 'just
price'. To the Paris theologians, it was immoral, sinful and illicit for the
market price to be anything other than the just price. This of course meant
that the just price became a weapon of compulsion instead of a broadly held
standard. Ardens included a just price as a crucial criterion of a 'just sale'.
More emphatically, his colleague and author of the first constitution of the
University of Paris, the Englishman and later Cardinal Robert of Cour~on (d.
1219), writing about 1204, termed selling goods above the just price an illicit
practice, and the eminent Stephen Langton sternly called any seller who
accepts more than the just price guilty of a mortal sin.
The theologians were well aware of their profound disagreement with the
jurists, but clung to their new and extreme views. Thus, William of Auxerre
(1160-1229), professor of theology at Paris, in 1220 wrote that divine law,
which commanded that no sale be higher than the just price, must supersede
human law, which followed laesio enormis. And his colleague, the English-
48 Economic thought before Adam Smith

man Thomas Chabham, also writing about 1220, fanatically insisted that
divine law demanded restitution from the seller even if the seller were only
mistaken, and the mistake was only a penny.
If the theologians insisted that the just price must be strictly obeyed, then
what in the world was it? While few of the theologians addressed this critical
matter directly, it is clear that what they had in mind was the same just price
as the canonists and Romanists, namely the current price at the particular
place, either the common market or the government-fixed price, if such a
regulation existed. The late twelfth century Paris theologian Peter Cantor (d.
1197), in treating the function of royal assessors, asserted that the just value
of goods is their current price. More succinctly, the great Franciscan theolo-
gian at Paris in the first half of the thirteenth century, the Englishman Alexan-
der of Hales (1168-1245) declared concisely that a 'just estimation of the
goods' is 'as it is sold commonly in that city or place in which the sale
occurs' . Even more clearly, the renowned thirteenth century German Domini-
can professor at Paris, Saint Albert the Great (1193-1280) put it thus: 'A
price is just which can equal the value of the goods sold according to the
estimation of the market place at that time' .
While the theologians, in wishing to enforce the current common price,
were more restrictive than the canon or Roman jurists, they did constructive
work in rehabilitating the image of the merchants from the low level to which
they had sunk in the writings of the Church Fathers.
As late as Peter Lombard (d. 1160), Italian professor of theology at Paris
and later bishop of Paris, the theologians had held the older view that a
merchant could not perform his duties without sinning. The beginning of the
full rehabilitation of the merchant came in the form of commentaries on the
Sentences of Peter Lombard (strictly, the Sententiarum quator libri, 1150-
51). The commentators, particularly after the turn of the thirteenth century,
engaged in a systematic justification of the merchant and of mercantile profit-
making. In the first place, the leading Sentence commentators, including the
Dominican professors at Paris, St Albert the Great (Commentary, 1244-49),
Peter of Tarentaise (later Pope Innocent V, d. 1276) (Commentary, 1253-57),
as well as the Italian theologian at Paris, St Bonaventure (1221-74) a student
of Alexander of Hales, general of the Franciscan Order and later cardinal
(Commentary, 1250-51), all declared that merchants were essential to soci-
ety. This conception was strengthened by the rediscovery of the works of
Aristotle by the early thirteenth century, and the incorporation of Aristotelian
philosophy into theology - first by Albert the Great and most especially by
his great student Thomas Aquinas. To these new Aristotelians, and also to the
English Franciscan Alexander of Hales, the division of labour was necessary
to society as was the concomitant mutual exchange of goods and services.
This was the path of the natural law in society.
The Christian Middle Ages 49

More specifically, Thomas Chabham, despite his insistence on every penny

of the just price, observed correctly that merchants performed the function of
taking goods from areas of abundance and distributing them to areas of defi-
ciency. Albert the Great repeated this insight later in the thirteenth century.
If trading is a useful and even necessary activity, it follows that profits for
maintaining such activity are justifiable. Hence the theologians reiterated the
twelfth century doctrine of the merchant being allowed to gain profits for the
support of himself and his family. To the needs justification, the twelfth
century theologians added the lawful nature of making profits in order to give
to charity. The Franciscan Alexander of Hales was perhaps the first to call it a
just and pious motive for trading to perform works of charity and mercy. It
was unworthy, however - echoing the Huguccian doctrine - to gain profits
for the sake of avarice or endless and insatiable cupidity.
If the labourer in the Christian tradition was 'worthy of his hire' (Luke
10:7), then profits from the useful activities of the merchant could be justified
as covering his 'labour', or rather his labour and expenses as the jurists had
already declared. Aquinas considered the earnings of the merchant a stipend
for labour. For the theologians, 'labour' consisted of several types: transport-
ing goods; storage and care; and - as had come in with the thirteenth century
canonists - the assumption of risk. Thus mercantile profits were a payment or
reward for the merchant's labour of transportation and storage, and his as-
sumption of risk. The risk factor was stressed particularly by Alexander of
Hales and St Thomas Aquinas. It should be noted, in contrast to many later
historians, that the purpose of the jurists' and theologians' discussions of
labour, cost, and risk was not to use these factors in determining the just price
(which was simply the current common price) but to justify the profits ob-
tained by the merchant.
Robert of Cour~on was the first thirteenth century theologian to add a
natural law angle to the traditional though flimsily grounded theological
denunciations of usury. Cour~on simply appropriated the canonist Huguccio's
sophistical moral distinction between a lease and a loan, with the former
being licit and the latter illicit because ownership of the money had temporar-
ily been shifted to the borrower. More influential was fellow Parisian theolo-
gian William of Auxerre, who added a string of new fallacies to the mounting
intensity of the Church's assault upon usury. William ranted that usury was
intrinsically evil and monstrous, without really explaining why; he also did
one better on the standard likening of usury to theft by actually comparing
usury to murder, to the detriment of the former. Killing, he said can some-
times be licit, since only certain forms of killing are sinful, but usury is sinful
everywhere and can never be licit. Since usury, according to William of
Auxerre, is sinful by its very nature, this made it a violation of the natural law
in addition to its other alleged iniquities.
50 Economic thought before Adam Smith

On why usury was a sin against the natural law William was unclear; one
of his innovative arguments in the anti-usury parade was that a man who
charges interest on a loan is trying to 'sell time', which is properly the
common property of all creatures. Since time is supposed to be common and
free, William of Auxerre and later theologians could therefore use this argu-
ment to condemn as 'usury' not merely a loan but also charging a higher
price for credit than for cash sales. In adding the 'free time' argument,
William unwittingly touched on the later Austrian solution to the problem of
pure interest on a riskless loan: the sale not of 'time' , to be sure, but of 'time-
preference', where the creditor is selling the debtor money, a present good (a
good useful now), in exchange for an IOU for the future which is a 'future
good' (a good only available at some point in the future). But since everyone
prefers a present good to an equivalent future good (the universal fact of
time-preference), the lender will charge, and the borrower will be willing to
pay, interest on a loan. Interest is, then, the price of time-preference. The
failure of the scholastics to understand or arrive at the concept of time
preference was to do more than anything else to discredit scholastic econom-
ics, because of its implacable hostility to and condemnation of the universal
practice of 'usury'.
William of Auxerre also tried to grapple with the voluntarist argument:
how could the usury charge be evil and unjust if paid voluntarily by the
borrower? In surely one of the silliest arguments in the history of economic
thought, William of Auxerre conceded that the borrower's payment of inter-
est was voluntary, but added that the borrower would have preferred a free
loan still more, so that in an 'absolute' rather than a 'conditional' sense, the
interest charge was not voluntary. William somehow failed to see that the
same could be said of the buyer of any product; since any buyer would prefer
a free good to the charge of any price, we could then conclude that all free
exchanges are involuntary and sinful in an 'absolute' sense.
Despite the manifest absurdity of this argument, the 'conditional' volun-
tary as well as the other new arguments of William of Auxerre were highly
influential and immediately incorporated into the standard theological argu-
ments against usury.
The German Dominican St Albert the Great performed the enormous serv-
ice to philosophy of bringing Aristotle and Aristotelianism back to Western
thought. Born in Bavaria to an aristocratic family, Albert was for a time
German provincial of the Dominican Order and bishop of Regensburg, but
for most of his long life he taught at the Universities of Paris and Cologne.
Unfortunately, Albert was not nearly as good an economist as he was a
philosopher, and in many ways he took scholastic economics down the wrong
road. It is true that he performed the service of teaching his great pupil, St
Thomas Aquinas, that the just price is the common market price, and that the
The Christian Middle Ages 51

merchant is performing a legitimate social role. On the other hand, Albert

unfortunately added the Aristotelian attack on usury as an unnatural breeding
of a 'barren metal' to the accumulated hodge-podge of all the other argu-
ments against interest. St Albert did not realise that Aristotle's attack on
usury was only part and parcel of the latter's denunciation of all retail trade,
since the Latin translation of Aristotle available to Albert rendered the Greek
term for retail trade as a Latin word meaning 'money-changing'. Hence,
Albert adopted this argument by mistake, since he would certainly not have
gone along with the Aristotelian idea that all retail trade was unnatural and
Albert also did great damage to future thought in another of his misinter-
pretations of Aristotle's Nichomachean Ethics. Somehow he interpreted the
Aristotelian determinant of value not as consumer needs or utility, but as
'labour and expenses', thus at least partially prefiguring the later labour
theory of value.

2.7 The philosopher-theologian: St Thomas Aquinas

St Thomas Aquinas (1225-74) was the towering intellect of the High Middle
Ages, the man who built on the philosophical system of Aristotle, on the
concept of natural law, and on Christian theology to forge 'Thomism', a
mighty synthesis of philosophy, theology and the sciences of man. This
young Italian was born an aristocrat, son of Landulph, count of Aquino at
Rocco Secca in the kingdom of Naples. Thomas studied at an early age with
the Benedictines, and later at the University of Naples. At the age of 15 he
tried to enter the new Dominican Order,. a place for Church intellectuals and
scholars, but was physically prevented from doing so by his parents, who
kept him confined for two years. Finally, St Thomas escaped, joined the
Dominicans, and then studied at Cologne and finally at Paris under his
revered teacher, Albert the Great. Aquinas took his doctorate at the Univer-
sity of Paris, and taught there as well as at other university centres in Europe.
Aquinas was so immensely corpulent that it was said that a large section had
to be carved out of the round dinner table so that he could sit at it. Aquinas
wrote numerous works, beginning with his Commentary on Peter Lombard's
Sentences in the 1250s, and ending with his masterful and enormously influ-
ential three-part Summa Theologica, written between 1265 and 1273. It was
the Summa, more than any other work, that was to establish Thomism as the
mainstream of Catholic scholastic theology in centuries to come.
Until recently, historical studies of the just price typically began with St
Thomas, as if the entire discussion had suddenly leapt into being in the ample
person of Aquinas in the thirteenth century. We have seen, however, that
Aquinas worked in a long and rich canonist, Romanist and theological tradi-
tion. It is not surprising that Aquinas followed his revered teacher, St Albert,
52 Economic thou~ht before Adam Smith

and the other theologians of the previous century in insisting on the just price
for all exchanges and, not being content with the more liberal legist creed of
free bargaining up to the alleged point of laesio enormis, in asserting that
divine law, which must take precedence over human law, demands complete
virtue, or the precise just price.
Unfortunately, in discussing the just price, St Thomas stored up great
trouble for the future by being vague about what precisely the just price is
supposed to be. As a founder of a system built on the great Aristotle, Aquinas,
following St Albert before him, felt obliged to incorporate the Aristotelian
analysis of exchange into his theory, with all the ambiguities and obscurities
that that entailed. St Thomas was clearly an Aristotelian in adopting the
latter's trenchant view that the determinant of exchange value was the need,
or utility, of consumers, as expressed in their demand for products. And so,
this proto-Austrian aspect of value based on demand and utility was rein-
stated in economic thought. On the other hand, Aristotle's erroneous view of
exchange as 'equating' values was rediscovered, along with the indecipher-
able shoemaker-builder ratio. Unfortunately, in the course of the Commen-
tary to the (Nichomachean) Ethics, Thomas followed St Albert in seeming to
add to utility, as a determinant of exchange value, labour plus expenses. This
gave hostage to the later idea that St Thomas had either added to Aristotle's
utility theory of value a cost of production theory (labour plus expenses), or
even replaced utility by a cost theory. Some commentators have even de-
clared that Aquinas had adopted a labo~r theory of value, capped by the
notorious and triumphant sentence by the twentieth century Anglican social-
ist historian Richard Henry Tawney: 'The true descendant of the doctrines of
Aquinas is the labour theory of value. The last of the Schoolmen is Karl
It has taken historians several decades to recover from Tawney's disastrous
misinterpretation. Indeed, the scholastics were sophisticated thinkers and
social economists who favoured trade and capitalism, and advocated the
common market price as the just price, with the exception of the problem of
usury. Even in value theory, the labour plus expenses discussion in Aquinas is
an anomaly. For labour plus expenses (never just labour) appears only in
Aquinas's Commentary and not in the Summa, his magnum opus. 3 Moreover,
we have seen that labour plus expenses was a formula generally used in
Aquinas's times to justify the profits of merchants rather than as a means of
determining economic value. It is therefore likely that Aquinas was using the
concept in this sense, making the sensible point that a merchant who failed in
the long run to cover his costs and not to make profits would go out of
In addition, there are many indications that Aquinas adhered to the com-
mon view of the Churchmen of his and previous times that the just price was
The Christian Middle Ages 53

the common market price. If so, then he could scarcely also hold that the just
price equalled cost of production, since the two can and do differ. Thus his
conclusion in the Summa was that 'the value of economic goods is that which
comes into human use and is measured by a monetary price, for which
purpose money was invented.' Particularly revealing was a reply Aquinas
made as early as 1262 in a letter to Jacopo da Viterbo (d. 1308), a lector of
the Dominican monastery in Florence and later archbishop of Naples. In his
letter, Aquinas referred to the common market price as the normative and just
price with which to compare other contracts. Moreover, in the Summa, Aquinas
notes the influence of supply and demand on prices. A more abundant supply
in one place will tend to lower price in that place, and vice versa. Further-
more, St Thomas described without at all condemning the activities of mer-
chants in making profits by buying goods where they were abundant and
cheap, and then transporting and selling them in places where they are dear.
None of this looks like a cost-of-production view of the just price.
Finally, and most charmingly and crucially, Aquinas, in his great Summa,
raised a question that had been discussed by Cicero. A merchant is carrying
grain to a famine-stricken area. He knows that soon other merchants are
following him with many more supplies of grain. Is the merchant obliged to
tell the starving citizenry of the supplies coming soon and thereby suffer a
lower price, or is it all right for him to keep silent and reap the rewards of a
high price? To Cicero, the merchant was duty-bound to disclose his informa-
tion and sell at a lower price. But St Thomas argued differently. Since the
arrival of the later merchants was a future event and therefore uncertain,
Aquinas declared justice did not require him to tell his customers about the
impending arrival of his competitors. He could sell his own grain at the
prevailing market price for that area, even though it was extremely high. Of
course, Aquinas went on amiably, if the merchant wished to tell his custom-
ers anyway, that would be especially virtuous, but justice did not require him
to do so. There is no starker example of Aquinas's opting for the just price as
the current price, determined by demand and supply, rather than the cost of
production (which of course did not change much from the area of abundance
to the famine area).
A piece of indirect evidence is that Giles of Lessines (d. c.1304), a student
of Albert and Aquinas and a Dominican professor of theology at Paris,
analysed the just price similarly, and flatly declared that it was the common
market price. Giles stressed, furthermore, that a good is properly worth as
much as it can be sold for without coercion or fraud.
It should come as no surprise that Aquinas, in contrast to Aristotle, was
highly favourable towards the activities of the merchant. Mercantile profit, he
declared, was a stipend for the merchant's labour, and a reward for shoulder-
ing the risks of transportation. In a commentary to Aristotle's Politics (1272),
54 Economic thought before Adam Smith

Aquinas noted shrewdly that greater risks in sea transportation resulted in

greater profits for merchants. In his Commentary to the Sentences of Peter
Lombard, written in the 1250s, Thomas followed preceding theologians in
arguing that merchants could ply their trade without committing sin. But in
his later work, he was far more positive, pointing out that merchants perform
the important function of bringing goods from where they are abundant to
where they are scarce.
Particularly important was Aquinas's brief outline of the mutual benefit
each person derives from exchange. As he put it in the Summa: 'buying and
selling seems to have been instituted for the mutual advantage of both par-
ties, since one needs something that belongs to the other, and conversely' .
Building on Aristotle's theory of money, Aquinas pointed out its indispen-
sability as a medium of exchange, a 'measure' of expression of values, and a
unit of account. In contrast to Aristotle, Aquinas was not frightened at the
idea of the value of money fluctuating on the market. On the contrary,
Aquinas recognized that the purchasing power of money was bound to fluctu-
ate, and was content if it fluctuated, as it usually did, more stably than did
particular prices.
It was the peculiar fate of the usury prohibition in the Middle Ages that
every time it seemed to be weakening in the face of reality, theorists would
strengthen the ban. At a time when the highly sophisticated and knowledge-
able Cardinal Hostiensis was seeking to soften the prohibition, 5t Thomas
Aquinas unfortunately tightened it once more. Like his teacher St Albert,
Aquinas added the Aristotelian objection to the medieval ban on usury, ex-
cept that Aquinas also inserted something new. In the medieval tradition of
starting with the conclusion - the crushing of usury - and seizing any odd
argument to hand which might lead to it, Aquinas added a new twist to
Aristotelian doctrine. Instead of stressing the barrenness of money as a major
argument against usury, Aquinas seized on the term 'measure' and stressed
that since money, in terms of money, of course, has a fixed legal face value,
this means that the formal nature of money must be to remain fixed. The
purchasing power of money can fluctuate due to changes in the supply of
goods; that is legitimate and natural. But when the holder of money sets out
to produce variations in its value by charging interest, he violates the nature
of money and is therefore sinful and mindless of the natural law.
That such arrant nonsense should swiftly assume a central place in all
later scholastic prohibitions of usury is testimony to the way that irrational-
ity can seize the thought of even so great a champion of reason as Aquinas
(and his followers). Why the fixed legal face value of a coin should mean
that its value in exchange - at least from the side of money - should not
change; or why the charging of interest should be confused with a change
in the purchasing power of money, simply testifies to the human propensity
The Christian Middle Ages 55

for fallacy, especially when prohibiting usury had already become the over-
riding goal.
But Aquinas's argument against usury involved another invention of his
own. Money, to him, is totally 'consumed'; it 'disappears' in exchange.
Therefore money's use is equivalent to its ownership. Hence, when one
charges interest on a loan, one is charging twice, for the money itself and for
its use, although they are one and the same. Highlighting this odd thesis was
Aquinas's discussion of why it was legitimate for an owner of money to
charge rent for someone to display a coin. In that case, there is a bailment, a
charge for keeping one's money in trust. But the reason why this charge is
licit, for Aquinas, is that the display of money is only a 'secondary' use, a use
separate from its ownership, since money is not 'consumed' or does not
disappear in the process. The primary use of money is to disappear in the
purchase of goods.
There are several grave problems with this new weapon invented by Aquinas
with which to beat usury. First, what is wrong with charging 'twice', for
ownership and use? Second, even if somehow wrong, this act scarcely bears
the weight of sin and excommunication that the Catholic Church had loaded
for centuries upon the hapless usurer. And third, if Aquinas had looked
beyond the legal formalism of money, and at the goods which the borrower
purchased with his loan, he might have seen that these purchased goods were
in an important sense 'fruitful', so that while the money 'disappeared' in
purchases, in an economic sense the goods-equivalent of money was retained
by the borrower.
St Thomas's stress on consumption of money led to a curious shift on the
usury question. In contrast to all theorists since Gratian, the sin now became
not charging interest on a loan per se, but only on a good - money - that
disappears. Therefore, for Aquinas, charging interest on a loan of goods in
kind would not be condemned as 'usury'.
But if the usury prohibition on money was tightened with new arguments,
Aquinas continued and strengthened the previous tradition of justifying in-
vestments in a partnership (societas). A societas was licit because each
partner retained ownership of his money, and ran the risk of loss; hence profit
on such risky investments was legitimate. In the late eleventh century, Ivo of
Chartres had already briefly distinguished a societas from a usurious loan,
and the distinction was elaborated in the early thirteenth century by the
theologian Robert of Cour~on (c. 1204), and in John Teutonicus' Gloss on
Gratian (1215). Cour~on had made it clear that even an inactive partner
risked his capital in an enterprise. This of course meant that types of inactive
partnerships, such as sea loans for specific voyages, slid over into actual
loans, and the lines were often fuzzy. Besides, and this was a problem that no
one at the time would face, wasn't any lender necessarily risking his capital,
56 Economic thought before Adam Smith

since a borrower could always turn out to be unable to repay even the
principal of a loan?
Aquinas now lent his enormous authority to the view that the societas was
perfectly licit and not usurious. He succintly declared that the investor of
money does not transfer ownership to a working partner; that ownership is
retained by the investor; so that he risks his money and can legitimately earn
a profit on the investment. The trouble with this, however, is that Aquinas
here abandons his own thesis that the ownership of money is the same thing
as its use. For the use of the money was transferred to the working partner,
and therefore on St Thomas's own grounds he should have condemned all
partnerships, as well as the societas, as illicit and usurious. Confronting a
thirteenth century world in which the societas flourished and was crucial to
commercial and economic life, it was unthinkable to Aquinas that he should
throw the economy into chaos by condemning this well-established instru-
ment of trade and finance.
Instead of ownership going with the use of a consumable item, then,
Aquinas now advanced the idea of ownership going with incidence of risk.
The investor risks his capital; therefore, he retains ownership of his invest-
ment. A seemingly sensible way out, but flimsy; not only did Aquinas thereby
contradict his own bizarre ownership theory, he also failed to realize that,
after all, not all ownership need be particularly risky. Another problem is that
the risk-taker is making a profit on the investment of money, which is sup-
posed to be sterile. Instead of stating that all profit should go to the working
partner, St Thomas explicitly says that the capitalist rightly receives the 'gain
coming thence' , i.e. from the use of his money, 'as from his own property.' It
looks very much as if St Thomas is here treating money as fertile and
productive, providing an independent reward to the capitalist.
Yet, despite the inner contradictions rife in St Thomas's treatment of usury
and the societas, his entire doctrine continued to be dominant for 200 years.
Finally, Aquinas was a firm believer in the superiority of private to com-
munal property and resource ownership. Private ownership becomes a neces-
sary feature of man's earthly state. It is the best guarantee of a peaceful and
orderly society, and it provides maximum incentive for the care and efficient
use of property. Thus, in the Summa, St Thomas keenly writes: 'every man is
more careful to procure what is for himself alone that that which is common
to many or to all since each one would shirk the labour and leave to another
that which concerns the community, as happens where there are a great
number of servants' .
Furthermore, developing the Roman law theory of acquisition, Aquinas,
anticipating the famous theory of John Locke, grounded the right of original
acquisition of property on two basic factors: labour and occupation. The
initial right of each person is to ownership over his own self, in Aquinas's
The Christian Middle Ages 57

view in a 'proprietary right over himself'. Such individual self-ownership is

based on the capacity of man as a rational being.
Next, cultivation and use of previously unused land establishes a just
property title in the land in one man rather than in others. St Thomas's theory
of acquisition was further clarified and developed by his close student and
disciple, John of Paris (Jean Quidort, c.1250-1306), a member of the same
Dominican community of St Jacques in Paris as Aquinas. Championing the
absolute right of private property, Quidort declared that lay property

is acquired by individual people through their own skill, labour and diligence, and
individuals, as individuals, have right and power over it and valid lordship; each
person may order his own and dispose, administer, hold or alienate it as he
wishes, so long as he causes no injury to anyone else; since he is lord.

This 'homesteading' theory of property has been held by many historians

to be the ancestor of the Marxian labour theory of value. But this charge
confuses two very different things: determination of the economic value or
price of a good, and a decision on how unused resources are to go over into
private hands. The Aquinas-John of Paris-Locke view is the 'labour theory'
(defining 'labour' as the expenditure of human energy rather than working
for a wage) of the origin of property, not a labour theory of value.
In contrast to his forerunner Aristotle, labour for Aquinas was scarcely to
be despised. On the contrary, labour is a dictate of positive, natural and
divine law. Aquinas is very much aware that God in the Bible gave the
dominion over all the earth to man for his use. Man's function is to take the
materials provided by nature and, by discerning natural law, to mould. that
reality to achieve his purposes. While Aquinas scarcely has any conception of
economic growth or capital accumulation, he clearly posits man as active
moulder of his life. Gone is the passive Greek ideal of conforming to given
conditions or to the requirements of the polis.
Perhaps St Thomas's most important contribution concerned the underpin-
ning or framework of economics rather than strictly economic matters. For in
reviving and building on Aristotle, St Thomas introduced and established in
the Christian world a philosophy of natural law, a philosophy in which
human reason is able to master the basic truths of the universe. In the hands
of Aquinas as in Aristotle, philosophy, with reason as its instrument of knowl-
edge, became once again the queen of the sciences. Human reason demon-
strated the reality of the universe, and of the natural law of discoverable
classes of entities. Human reason could know about the nature of the world,
and it could therefore know the proper ethics for mankind. Ethics, then,
became decipherable by reason. This rationalist tradition cut against the
'fideism' of the earlier Christian Church, the debilitating idea that only faith
and supernatural revelation can provide an ethics for mankind. Debilitating
58 Economic thought before Adam Smith

because if the faith is lost, then ethics is lost as well. Thomism, in contrast,
demonstrated that the laws of nature, including the nature of mankind, pro-
vided the means for man's reason to discover a rational ethics. To be sure,
God created the natural laws of the universe, but the apprehension of these
natural laws was possible whether or not one believed in God as creator. In
this way, a rational ethic for man was provided on a truly scientific rather
than on a supernatural foundation.
In the subset of natural law theory that deals with rights, St Thomas led a
swing back from the twelfth century concept of a right as a claim on others
rather than as an inviolable area of property right, of the dominion of an
individual, to be defended from all others. In a brilliant work, Professor
Richard Tuck4 points out that early Roman law was marked by an 'active'
property right/dominion view of rights, while the later twelfth century
Romanists at Bologna converted the concept of 'right' to the passive listing
of claims on other men. This 'passive' as opposed to 'active' concept of
rights reffected the network of interwoven, customary and status claims that
marked the Middle Ages. This is, in an important sense, the ancestor of the
modern assertion of such 'claim-rights' as 'the right to a job', the 'right to
three square meals a day' , etc., all of which can only be fulfilled by coercing
others to obtain them.
At thirteenth century Bologna, however, Accursius began a swing back to
an active property rights theory, with the property of each individual a do-
minion which must be defended against all others. Aquinas adopted the idea
of a natural dominion without, however, going all the way to a genuine
natural rights theory, which asserts that private property is natural and not a
convention created by society or government. Aquinas was moved to adopt
the dominion theory because of the mighty late thirteenth century ideological
battles between the Dominican and Franciscan Orders. The Franciscans,
committed to total poverty, claimed that their subsistence use of resources
was not really private property; this pleasant fiction enabled the Franciscans
to claim that, in their state of voluntary poverty, they had risen above the
ownership or possession of property. They maintained oddly that purely
consumption use of resources, such as they engaged in, did not imply the
possession of property. Supposedly, the sale or giving away of a resource was
necessary to qualify it as property. Self-sufficiency or isolation did not,
according to the Franciscan view, allow property to exist. The rival Domini-
cans, including Aquinas, understandably upset by this claim, began to insist
that all use necessarily implied dominion, the possession and control of
resources, and therefore property.
The Christian Middle Ages 59

2.8 Late thirteenth century scholastics: Franciscans and utility theory

The first victory in the struggle over property right concepts was won by the
Franciscans, whose theory was upheld by their protector, Pope Nicholas III,
in his bull Exiit, issued in 1279. This dominant theory was elaborated by the
first great critic of Thomism, the British Franciscan scholastic John Duns
Scotus (1265-1308), professor of theology at Oxford and later at Paris.
Aquinas had maintained that neither private nor communal property was a
necessary feature of the state of nature, so that one condition was no more
natural than the other. Scotus, on the contrary, boldly maintained that in a
state of natural innocence both natural and divine law decree that all re-
sources be held in common, so that no private property or dominion may
exist. In this supposedly idyllic primitive communism, each person may take
what he needs from the common store.
Rights theory was scarcely the only Franciscan deviation from mainline
Thomism. As fideists, the Franciscans harked back to earlier Christian tradi-
tion before it had been superseded by the rationalism of St Thomas. They
began, therefore, to deprecate the idea of a rational ethics and hence of
natural law. .
In the matter of rights theory, at least, the Franciscans were soon smashed.
Reacting against the Franciscans, Pope John XXII issued his famous bull
Quia vir reprobus (1329). Quia asserted trenchantly that God's dominion
over the earth was reflected in man's dominion or property over his material
possessions. Property rights, therefore, were not, as even Aquinas had be-
lieved, a product of positive law or social convention; they were rooted in
man's nature, as created by divine law. Property rights were therefore natural
and coextensive with man's actions in the material world. The Franciscans
were effectively routed on this point; it was now established, as Richard Tuck
puts it, that property 'was a basic fact about human beings, on which their
social and political concepts had to be posited' .5
In more strictly economic matters, Franciscans could either adhere to or
deviate from the mainline Thomist concept of the just price. Scotus himself
set forth a deviationist view. In his commentary on Peter Lombard's Sen-
tences, Scotus elaborated a minority view that many historians have wrongly
attributed to scholasticism as a whole: that the just price was the merchant's
cost of production plus compensation for the industry, labour and risk in-
volved in bringing his product to market. The compensation, furthermore,
was supposed to provide adequate support for the family of the merchant. In
this way, labour plus expenses plus risk, previously employed to justify
whatever profits the merchant might obtain, was now transformed into the
determinant of the just price. Scotus made this cost-of-production a theory of
just price, in contrast to the long-standing mainstream scholastic view that
the just price was the common price on the market.
60 Economic thought before Adam Smith

Although a Franciscan, the British scholastic at the University of Paris,

Richard of Middleton (c. 1249-1306), followed the economic doctrine of
Aquinas and stressed need and utility as the determinants of economic value.
The just price, following the main scholastic line, was equivalent to the
common market price determined by these needs. Middleton also underlined
Aquinas's vitally important concept that both parties to an exchange benefit.
Becoming more precise than Aquinas, Middleton pointed out that, say, when
a horse is sold for money, both the buyer and the seller gain from the
transaction, since the buyer demonstrates that he needs the horse more than
the money while the seller prefers the money to the horse.
In addition to developing this crucial concept of mutual benefit, Richard of
Middleton was the first to apply that concept to international trade. Interna-
tional trade, as well as individual exchange, brings mutual benefits. Middleton
illustrated this idea by postulating two countries: country A which has a
superabundance of grain but a dearth of wine, and country B which has an
abundance of wine but little grain. Both countries will then benefit by ex-
changing their respective surpluses. The merchants will also profit by trans-
porting grain from country A, where it is abundant and its price is therefore
cheap, to country B, where it is scarce and commands a high price. Mer-
chants will also profit by the reverse traffic: shipping wine from country B,
where its price is low, to A, where its price is high. By buying and selling at
current market prices, the merchants are trading at the just price, and make a
profit yet exploit no one. The merchants are justly compensated for perform-
ing a useful service and for taking trouble and risks. The only point missed
by Middleton in this sophisticated analysis is that the actions of the various
merchants will move toward equalizing prices in the two countries.
An even more dazzling contribution to economic thought was made by a
Proven~al Franciscan friar, for many years lector at Florence. Pierre de Jean
Olivi (1248-98), in two treatises on contracts, one on usury and the other on
purchases and sales, pointed out that economic value was determined by
three factors: scarcity (raritas); usefulness (virtuositas); and desirability or
desiredness (complacibilitas). The effect of scarcity, or what we would now
call 'supply', is clear: the scarcer a product the more valuable it is, and
therefore the higher the price. The more abundant the product (the greater the
supply), on the other hand, the lower the value and the price.
Olivi's remarkable contribution was to investigate the previously vague
concept of need or utility. Aquinas's student and disciple, the Dominican
Giles of Lessines, teaching at the University of Paris, had taken the utility
concept a step further by stating that goods are more or less valuable on the
market according to the degree of their utility. But now Olivi separated utility
into two parts. One was virtuositas, or the objective utility of a good, the
objective power it has to satisfy human wants. But, as Olivi explains, the
The Christian Middle Ages 61

important factor in determining price is complacibilitas, or subjective utility,

the subjective desirability of a product to the individual consumers.
Furthermore, Olivi squarely confronted the 'paradox of value' which would
later confound Adam Smith and the classical economists, and did far better
than they at solving it. The 'value paradox' is that a good such as water or
bread, essential to life and therefore, according to the classical economists,
having a high 'use-value', should be very cheap and have a low value on the
market. At the same time, in contrast, gold or diamonds, non-essential luxuries
and therefore of far lower use-value, have far higher exchange value on the
market. The classical economists of the eighteenth and nineteenth centuries
simply threw up their hands at this paradox and unsatisfactorily posed a sharp
dichotomy between use- and exchange-value. Olivi, on the other hand, pointed
to the solution: water, though necessary to human life, is so highly abundant
and easily available that it commands a very low price on the market, while
gold is far more scarce and therefore more valuable. Utility, in the determina-
tion of price, is relative to supply and not absolute. The complete solution to
the value paradox had to wait for the Austrian School of the late nineteenth
century: the 'marginal utility' - the value of each unit of a good - diminishes as
its supply increases. Thus a superabundant good such as bread or water will
have a low marginal utility, while a rare good such as gold will have a high one.
The value of a good on the market, and therefore its price, is detennined by its
marginal utility, not the philosophical utility of the good as a whole or in the
abstract. But, of course, before the Austrians, the marginal concept was lacking.
The marketplace for Olivi, then, was an arena in which prices for goods
are formed out of the interaction of individuals with differing subjective
utilities and valuations of the good. Just market prices, then, are not deter-
mined by referring to the objective qualities of the good, but by the inter-
action of subjective preferences on the market.
In addition to his monumental achievement in being the first to discover
subjective utility theory, Olivi was the first to bring into economic thought the
concept of capital (capitale) as a fund of money invested in a business venture.
The term 'capital' had appeared in numerous business records since the mid-
twelfth century, but this is the first time it was conceptualized. The concept of
capital was used by Olivi to show that it was possible to use money in a fruitful
way, to gain a profit. Olivi retained the usury ban where capital was invested
without being altered in some way by the labour and industry of the investor.
However, Olivi was one of the minority of scholastics to adopt the Hostiensis
allowance of lucrum cessans - pennitting an interest charge on a loan wherever
the profit on an investment was foregone in the process. Unfortunately, Olivi
continued Hostiensis' careful limitation of confining lucrum cessans to loans
granted out of charity, so that the activities of a professional money-lender
could still in no way be justified.
62 Economic thought before Adam Smith

It is a notable irony in the history of economic thought that the discoverer

of the subjective utility theory, a highly sophisticated analyst of how the
market economy worked, a believer in the just price as the common market
price, the initiator of the concept of capital, and a defender of at least the
partial use of lucrum cessans as a way of justifying interest: that this great
market thinker should have been the leader of the rigourist wing of the
Franciscan order that believed in living in extreme poverty. Perhaps one
explanation is that Olivi was born in the highly important market town of
Narbonne. He was the main intellectual leader of the Spiritual Franciscans,
who believed devoutly in following faithfully the rule of total poverty laid
down by the founder of the order, St Francis of Assisi (1182-1226). It is a
further irony that Olivi's opponents, the Conventual Franciscans, who be-
lieved in a far laxer interpretation of the rule, hurled anathemas at Olivi and
other Spirituals and managed to destroy many physical as well as intellectual
traces of Olivi's work. In 1304, six years after his death, a chapter general of
the Franciscan Order commanded the destruction of all Olivi's works, and 14
years later, the unfortunate Olivi's body was disinterred and his bones scat-
Not only were many physical copies of Olivi's writings destroyed, but it
became unhealthy for Franciscans, at least, to refer to his works. As a result,
when, nearly a century and a half later, Olivi's forgotten work was rediscov-
ered by the great Franciscan saint San Bernardino (St Bernardine) of Siena,
Bernardino thought it prudent not even to refer to the heretic Olivi, even
though he used the latter's theory of utility virtually word for word in his own
work. This reticence was necessary because Bernardino belonged to the strict
Observant wing of the Franciscans, in a way descendants of Olivi's Spirituals.
Indeed, it has only been since the 1950s that the illuminating economic
writings of Olivi, and their appropriation by San Bernardino, have come to
Perhaps another reason for the hysteria with which the mainstream
Franciscans greeted the religious views of Pierre Olivi was his continuing
dalliance with the Joachimite heresy. One of the founders of mystical Chris-
tian messianism was the Calabrian hermit and Abbot Joachim of Fiore (1145-
1202). In the early 1190s Joachim adopted the thesis that there had been in
history not just two ages (pre-Christian and post-Christian), but a third age,
of which he himself was the prophet. The pre-Christian epoch was the age of
the Father, of the Old Testament; the Christian era the age of the Son, of the
New Testament. And now was coming the fulfilment, the new third age, the
apocalyptic age of the Holy Spirit, in which history was soon to come to an
end. The third age, which for Joachim was to be ushered in during the next
half-century, in the early or mid-thirteenth century, was to be an age of pure
love and freedom. The knowledge of God would be revealed directly to all
The Christian Middle Ages 63

men, and there would be no work or property, because human beings would
possess only spiritual bodies, their material bodies having disappeared. There
would be no Church or Bible or state, but only a free community of perfect
spiritual beings who would spend all their time in mystical ecstasy praising
God until this millennial Kingdom of the Saints would usher in the Last
Days, the days of the Last Judgement.
Seemingly tiny divergences in premisses often have grave social and po-
litical consequences, and such was true of disagreements among Christians
on the apparently recondite question of eschatology, the science or discipline
of the Last Days. Since St Augustine, the orthodox Christian view has been
amillennialist, that is, that there is no special millennium or Kingdom of God
in human history except the life of Jesus and the establishment of the Chris-
tian Church. This is the view of Catholics, of Lutherans, and probably of
Calvin himself. The ideological or social conclusion is that Jesus will return
to usher in the Last Judgement and the end of history in His own time, so that
there is nothing that human beings can do to speed the Last Days. One
variant of this doctrine is that after Jesus's return He will launch a thousand
years of the Kingdom of God on earth before the Last Judgement; in practical
terms, however, there is little of a significant difference here, since Christian-
ity remains in place, and there is still nothing man can do to usher in the
The crucial difference comes with chiliastic ideas such as those of Joachim
of Fiore, where not only was the world coming to the end soon, but man must
do certain things to usher in the Last Days, to prepare the way for the Last
Judgement. These are all post-millennial doctrines, that is, that man mustjirst
set up a Kingdom of God on earth as a necessary condition either for Jesus's
return or for the Last Judgement. Generally, as we shall see further in the
Protestant Reformation, post-millennial views lead to some form of theo-
cratic coercion of society to pave the way for the culmination of history.
For Joachim of Fiore the path to the Last Days would be blazed by a new
order of highly spiritual monks, from whom would come 12 patriarchs headed
by a supreme teacher, who would convert the Jews to Christianity, as foretold
in Revelation, and would lead all mankind away from the material and
towards the love of things of the spirit. Then, for a brief blazing, three-and-a-
half years, a secular king, the Antichrist, would chastise and destroy the
corrupt Christian Church. The swift overthrow of the Antichrist would then
usher in the total age of the Spirit.
In view of the radical and potentially explosive nature of Joachim's heresy,
it is remarkable that no less than three contemporary popes expressed great
interest in his doctrine. By the middle of the thirteenth century, however,
10achimism was neglected and little known. It is small wonder that the
10achimite heresy was revived by the Spiritual Franciscans, who were tempted
64 Economic thought before Adam Smith

to see in their own flourishing new order, and in their devotion to poverty, the
very monastic order that had been foretold by Joachim to bring about the Last

2.9 Notes
I. Saint Augustine, The City (~t' God (Cambridge, Mass.: Loeb Classical Library/Harvard
University Press, 1963), Vol. II, Book IV, IV, p. 17.
2. Richard Henry Tawney, Religion and the Rise (~t' Capitalism (New York: Harcourt, Brace
and World, 1937, orig. 1926), p. 36.
3. There is controversy among historians on when the Commentary was written. The older
view, that it was written in 1266 or even earlier, would imply the simple explanation that
Aquinas's views had matured from his earlier close adherence to his teacher, St Albert. The
newer view, that the Commentary was written at the same time as the Summa, leaves the
anomaly intact.
4. Richard Tuck, Natural Rights Theories: Their Origin and Development (Cambridge: Cam-
bridge University Press, 1979).
5. Ibid., p. 24.
3 From Middle Ages to Renaissance

3.1 The great depression of the fourteenth century 67

3.2 Absolutism and nominalism: the break-up of Thomism 71
3.3 Utility and money: Buridan and Oresme 72
3.4 The odd man out: Heinrich von Langenstein 77
3.5 Usury and foreign exchange in the fourteenth century 79
3.6 The worldly ascetic: San Bernardino of Siena 81
3.7 The disciple: Sant'Antonino of Florence 85
3.8 The Swabian liberals and the assault on the prohibition of usury 88
3.9 Nominalists and active natural rights 93
3.10 Notes 94

From Middle Ages to Renaissance 67

3.1 The great depression of the fourteenth century

Most people - historians not excepted - are tempted to think of economic and
cultural progress as being continuous: in every century people are better off
than in the one preceding. This comforting assumption had to be given up
quite early when the Dark Ages ensued after the collapse of the Roman
Empire. But it was generally held that after the 'renaissance' of the eleventh
century, progress in western Europe was pretty well linear and continuous
from that point to the present day. It took heroic efforts over many decades
for economic historians like Professors Armando Sapori and Robert Sabatino
Lopez to finally convince the historical profession that there was a grave
secular decline in most of western Europe from approximately 1300 to the
middle of the fifteenth century; a period which might be called the Late
Middle Ages or the Early Renaissance. This secular decline, mistitled a
'depression', permeated most parts of western Europe with the exception of a
few Italian city-states.
The economic decline was marked by a severe drop in population. Since
the eleventh century, economic growth and prosperity had pulled up popula-
tion figures. Total population in western Europe, estimated at 24 million in
the year 1000 AD, had vaulted to 54 million by the year 1340. In little over a
century, from 1340 to 1450, however, the western European population fell
from 54 million to 37 million, a 31 per cent drop in only a century.
The successful battle to establish the fact of the great decline has done
little, however, to establish the cause or causes of this debacle. Focus on the
devastation caused by outbreaks of the Black Death in the mid-fourteenth
century is partially correct, but superficial, for these outbreaks were them-
selves partly caused by an economic breakdown and fall in living standards
which began earlier in the century. The causes of the great depression of
western Europe can be summed up in one stark phrase: the newly imposed
domination of the state. During the medieval synthesis of the High Middle
Ages there was a balance between the power of Church and state, with the
Church slightly more powerful. In the fourteenth century that balance was
broken, and the nation-state came to hold sway, breaking the power of the
Church, taxing, regulating, controlling and wreaking devastation through
virtually continuous war for over a century (the Hundred Years' War, from
1337 to 1453).1
The first and critically most important step in the rise in the power of the
state at the expense of crippling the economy was the destruction of the fairs
of Champagne. During the High Middle Ages, the fairs of Champagne were
the main mart for international trade, and the hub of local and international
commerce. These fairs had been carefully nurtured by being made free zones,
untaxed or unregulated by the French kings or nobles, while justice was
swiftly and efficiently meted out by competing private and merchants' courts.
68 Economic thought before Adam Smith

The fairs of Champagne reached their peak during the thirteenth century, and
provided the centre for land-based trade over the Alps from northern Italy,
bearing goods from afar.
Then, in the early fourteenth century, Philip IV, the Fair, king of France
(1285-1314), moved to tax, plunder, and effectively destroy the vitally im-
portant fairs of Champagne. To finance his perpetual dynastic wars, Philip
levied a stiff sales tax on the Champagne fairs. He also destroyed domestic
capital and finance by repeated confiscatory levies on groups or organizations
with money. In 1308, he destroyed the wealthy Order of the Templars, confis-
cating their funds for the royal treasury. Philip then turned to impose a series
of crippling levies and confiscations on Jews and northern Italians ('Lombards')
prominent at the fairs: in 1306, 1311, 1315, 1320 and 1321. Furthermore, at
war with the Flemings, Philip broke the long-time custom that all merchants
were welcome at the fairs, and decreed the exclusion of the Flemings. The
result of these measures was a rapid and permanent decline of the fairs of
Champagne and of the trading route over the Alps. Desperately, the Italian
city-states began to reconstitute trade routes and sail around the Straits of
Gibraltar to Bruges, which began to flourish even though the rest of Flanders
was in decay.
It was particularly fateful that Philip the Fair inaugurated the system of
regular taxation in France. Before then, there were no regular taxes. In the
medieval era, while the king was supposed to be all-powerful in his own
sphere, that sphere was restricted by the sanctity of private property. The king
was supposed to be an armed enforcer and upholder of the law, and his
revenues were supposed to derive from rents on royal lands, feudal dues and
tolls. There was nothing that we would call regular taxation. In an emer-
gency, such as an invasion or the launching of a crusade, the prince, in
addition to invoking the feudal duty of fighting on his behalf, might ask his
vassals for a subsidy; but that aid would be requested rather than ordered, and
be limited in duration to the emergency period.
The perpetual wars of the fourteenth and the first half of the fifteenth
centuries began in the 1290s, when Philip the Fair, taking advantage of King
Edward I of England's war with Scotland and Wales, seized the province of
Gascony from England. This launched a continuing warfare between Eng-
land and Flanders on the one side, and France on the other, and led to a
desperate need for funds by both the English and the French Crowns.
The merchants and capitalists at the fairs of Champagne might have money,
but the largest and most tempting source for royal plunder was the Catholic
Church. Both the English and French monarchs proceeded to tax the Church,
which brought them into a collision course with the pope. Pope Boniface VIII
(1294-1303) stoutly resisted this new form of pillage, and prohibited the
monarchs from taxing the Church. King Edward reacted by denying justice in
From Middle Ages to Renaissance 69

the royal courts to the Church, while Philip was more militant by prohibiting
the transfer of Church revenue from France to Rome. Boniface was forced to
retreat and to allow the tax, but his bull Unam Sanctam (1302) insisted that
temporal authority must be subordinate to the spiritual. That was enough for
Philip, who boldly seized the pope in Italy and prepared to try him for heresy,
a trial only cut off by the death of the aged Boniface. At this point Philip the
Fair seized the papacy itself, and brought the seat of the Roman Catholic
Church from Rome to Avignon, where he proceeded to designate the pope
himself. For virtually the entire fourteenth century, the pope, in his 'Babylonian
captivity', was an abject tool of the French king; the pope only returned to
Italy in the early fifteenth century.
In this way, the once mighty Catholic Church, dominant power and spir-
itual authority during the High Middle Ages, had been brought low and made
a virtual vassal of the royal plunderer of France.
The decline of Church authority, then, was matched by the rise in the
power of the absolute state. Not content with confiscating, plundering, tax-
ing, crushing the fairs of Champagne, and bringing the Catholic Church
under his heel, Philip the Fair also obtained revenue for his eternal wars by
debasement of the coinage and thereby generated a secular inflation.
The wars of the fourteenth century did not cause a great deal of direct
devastation: armies were small and hostilities were intermittent. The main
devastation came from the heavy taxes and from the monetary inflation and
borrowing to finance the eternal royal adventures. The enormous increase of
taxation was the most crippling aspect of the wars. The expenses of war:
recruitment of the modestly sized army; payments of its wages; supplies; and
fortifications - all cost from two- to fourfold the ordinary expenses of the
Crown. Add to that the' high costs of tax assessment and enforcement and the
cost of the loans, and the crippling burden of war taxation becomes all too
The new taxes were everywhere. We have seen the grave effect of taxes on
the Church; on a large monastic farm, they often absorbed over 40 per cent of
the net profits of the farm. A uniform poll tax of one shilling, levied by the
English Crown in 1380, inflicted great hardship on peasants and craftsmen.
The tax amounted to one month's wages for agricultural workers and one
week's wages for urban labourers; moreover, since many poor workers and
peasants were paid in kind rather than money, amassing the money to pay the
tax was particularly difficult.
Other new taxes levied were ad valorem on all transactions; taxes on
wholesale and retail beverages; and levies on salt and wool. To combat
evasion of the tax, the governments established monopoly markets for the
sale of salt in France and 'staple points' for English wool. The taxes re-
stricted supply and raised prices, crippling the critical English wool trade.
70 Economic thought before Adam Smith

Production and trade were hampered further by massive requisitions levied

by the kings, thus causing a drastic fall of income and wealth, as well as
bankruptcies among the producers. In short, consumers suffered from artifi-
cially high prices and producers from low returns, with the king bleeding the
economy of the differential. Government borrowing was scarcely more help-
ful, leading to repeated defaults by the kings and consequent heavy losses
and bankruptcies among the private bankers unwise enough to lend to the
Originating as a response to wartime 'emergency', the new taxes tended to
become permanent: not only because the warfare lasted for over a century,
but because the state, always on the lookout for an increase in its income and
power, seized upon the golden opportunity to convert wartime taxes into a
permanent part of the national heritage.
From the middle to the end of the fourteenth century, Europe was struck
with the devastating pandemic of the Black Death - the bubonic plague -
which in the short span of 1348-50 wiped out fully one-third of the popula-
tion. The Black Death was largely the consequence of people's lowered
living standards caused by the great depression and the resulting ··loss of
resistance to disease. The plague continued to recur, though not in such
virulent form, in every decade of the century.
Such are the great recuperative powers of the human race that this enor-
mous tragedy caused virtually no lasting catastrophic social or psychological
effects among the European population. In a sense, the longest-lasting ill
effect from the Black Death was the response of the English Crown in
imposing permanent maximum wage control and compulsory labour ration-
ing upon English society. The sudden decline of population and consequent
doubling of wage rates was met by the government's severe imposition of
maximum wage control in the Ordinance of 1349 and the Statue of Labourers
of 1351. Maximum wage control was established at the behest of the employ-
ing classes: large, middle and small landlords, and master craftsmen, the
former groups in particular alarmed at the rise of agricultural wage rates. The
ordinance and the statute defied economic law by attempting to enforce
maximum wage control at the old pre-plague levels. The inevitable result,
however, was a grave shortage of labour, since at the statutory maximum
wage the demand for labour was enormously greater than the newly scarce
Every government intervention creates new problems in the course of vain
attempts to solve the old. The government is then confronted with the choice:
pile on new interventions to solve the inexplicable new problems, or repeal
the original intervention. Government's instinct, of course, is to maximize its
wealth and power by adding new interventions. So did the English Statute of
Labourers, which imposed forced labour at the old wage rates for all men in
From Middle Ages to Renaissance 71

England under the age of 60; restricted the mobility of labour, declaring that
the lord of a particular territory had first claim on a man's labour; and made it
a criminal offence for an employer to hire a worker who had left a former
master. In that way, the English government engaged in labour rationing to
try to freeze labourers at their pre-plague occupations at pre-plague wages.
This forced rationing of labour cut against the natural inclination of men to
leave for more employment at better wages, and so the inevitable rise of
black markets for labour made enforcement of the statutes difficult. The
desperate English Crown tried once again, in the Cambridge Statute of 1388,
to make the rationing more rigorous. Labour mobility of any sort was prohib-
ited without written permission from local justices, and compulsory child
labour was imposed in agriculture. But there was continual evasion of this
compulsory buyers' cartel, especially by large employers, who were particu-
larly eager and able to pay higher wage rates. The cumbersome English
judicial machinery was totally ineffective in enforcing the legislation, al-
though the monopolistic urban guilds (monopolies enforced by government)
were able to partially enforce wage control in the cities.

3.2 Absolutism and nominalism: the break-up of Thomism

Along with the rise of the absolute state, theories of absolutism arose and
began to throw natural law doctrines into the shade. The adoption of natural
law theory, after all, meant that the state was bound to limit itself to the
dictates of the natural or the divine law. But new political theorists arose,
asserting the dominance of the temporal over the spiritual, and of the state's
positive law over the natural or divine order. The first and most influential of
such late medieval champions of absolutism was Marsiglio of Padua (c.1275-
1342), in his famous Defensor Pacis (Defence of the peace) (1324). The son
of a Paduan lawyer, Marsiglio rose to become rector of the University of
Paris. The state, opined Marsiglio, is supreme and must be obeyed in and for
itself. This glorification of the state went hand in hand with a denial that
human reason could come to know any natural law outside of positive edicts
of the state. For Marsiglio, reason had to be separated from justice or human
society. Justice has no rational foundation; it is purely mystical and solely a
matter of faith. God's commands are purely arbitrary and mysterious, and not
to be understood in terms of rational or ethical content.
As a corollary, positive law has nothing to do with right reason; it is promul-
gated to advance the 'life and health of the state'. According to Marsiglio, the
nation is an organism, with the state functioning as its head. As Professor
Rothkrug writes, 'Marsiglio says the state is a living organism not subject to
reason because, like a plant, it develops in accord with inborn impulses'.2
The practical conclusion Marsiglio derived from his political philosophy is
that the state, whether kingdom or Italian city-republic, must have absolute
72 Economic thought before Adam Smith

power within its domain, and must not be subject to any temporal check or
jurisdiction by the Church. Thus, while religiously a Catholic, Marsiglio
anticipated the politiques in France and elsewhere two centuries later by
insisting that the Church may have no temporal power as against the state.
Marsiglio thereby foreshadowed and helped to bring about the break-up of
the medieval order in Europe.
Also destructive of the achievements of the High Middle Ages was the
ideological break-up of Thomism ushered in by the fourteenth century. This
decline emerged out of Franciscan fideism, begun by 5t Thomas's great
English rival John Duns 5cotus. It used to be thought that this destruction
was brought to a logical conclusion by the fourteenth century Franciscan
Oxford philosopher William of Ockham (c. 1290-1350). Ockhamite nominal-
ism, it has been held, denied the power of human reason to arrive at the
essential truths about man and the universe, and therefore negated the power
of reason to arrive at a systematic ethic for man. Only God's will, discernible
by faith in revelation, could yield truths, laws, or ethics. It should be clear
that nominalism paved the way for modern scepticism and positivism, for if
faith in divine will is abandoned, reason no longer has the power to arrive at
scientific or ethical truths. Politically, nominalism failed to provide a natural
law standard to set against the state, and it therefore fitted with the growing
state absolutism of the Renaissance.
Recent scholarship, however, casts grave doubt on whether Ockham and
his followers were really nominalists or were rather essentialists and believ-
ers in natural law. Thus, it turns out that the eminent Augustinian contempo-
rary of Ockham, the Italian Gregory of Rimini (d.1358) was not really a
nominalist but a staunch champion of essentialism, reason and natural law. In
contrast to the usual view of Ockham and his followers, Gregory held that
natural law comes not from God's will but from the dictates of right reason,
and he even went further towards an all-out rationalist position generally
thought to have been invented three centuries later by the Dutch Protestant
philosopher and jurist Hugo Grotius. This position held that, even if God did
not exist, the system of natural law would be given to us by the dictates of
right reason, the violation of which would still be a sin. Thus, as Gregory put
it: 'If, per impossibile, the divine reason, or God himself did not exist, or that
that reason were mistaken, still if one were to act against right reason,
angelic, human or any other if such there be, he would sin' .

3.3 Utility and money: Buridan and Oresme

Being a Franciscan and a student of William of Ockham did not prevent the
great French philosopher-scientist Jean Buridan de Bethune (1300-58), born
in Picardy, to become rector of the University of Paris, from making the next
important contribution to economic thought in the essentialist Thomist tradi-
From Middle Ages to Renaissance 73

tion. In his Quaestiones, a thorough commentary on Aristotle's Ethics, Buridan

continued the Aristotle-Thomas analysis of the exchange value of goods
being determined by consumer need or utility. But Buridan also pressed on to
point out that a house would never exchange for one garment, since the
builder would have to forego a year's worth of food for a much less valuable
good. In short, Buridan was groping towards an opportunity-cost concept of
cost of production and influence on supply.
More importantly, Buridan advanced beyond the initiative of Richard of
Middleton in analysing the mutual benefit that each party necessarily derives
from an exchange. In discussing exchange, Buridan notes that both parties
benefit, and that trade is not, as many people believe, a type of warfare in
which one party benefits at the expense of another. Furthermore, Buridan
proceeds to a sophisticated analysis in which he dramatically shows that two
parties to a two-good exchange can both benefit even if the exchange is itself
immoral and is to be condemned on ethical or theological grounds. Thus
Buridan poses the rather provocative hypothetical:

Because Socrates gave his wife willingly and with her consent to Plato to commit
adultery in exchange for ten books, which one of them suffered a loss and which
one gained? ... Both suffered injury as far as their soul was concerned... [but]
with regard to the external good. each gained since he has more than he needs.

For Buridan as for most other scholastics, the just price was the market
price. Buridan also provided a sophisticated analysis of how common human
need and utility resulted in market prices. The greater the need and hence the
greater the demand, the greater the value; also, a reduction in the supply of a
product will cause its price on the market to rise. Furthermore, a good is more
expensive where it is not produced than where it is, since there is a greater
demand for it in the former place; again, the marginal concept is all that is
needed to complete the analysis of demand, supply and price. There are also
intimations in Buridan of different valuations by market participants result-
ing in a single price, with varying consumer and producer psychic surpluses
for each participant.
But the main great leap forward in economics contributed by Jean Buridan
was his virtual creation of the modern theory of money. Aristotle had ana-
lysed the advantages of money, and its overcoming of the double-coinci-
dence-of-wants problem of barter, but his outlook was clouded by his funda-
mental hostility to trade and money-making. To Aristotle, therefore, money
was not natural but an artificial convention, and therefore basically a creature
of the state or polis. Aquinas's theory of money was basically confined within
the Aristotelian shackles. It was Jean Buridan who broke free of those shack-
les and founded the 'metallist' or commodity theory of money, i.e. that
money originates naturally as a useful commodity on the market, and that the
74 Economic thought before Adam Smith

market will pick the medium of exchange, almost always a metal if available,
possessing the best qualities to serve as a money.
Money then, for Buridan, is a market commodity, and the value of that
money, just as in the case of other market commodities, 'must be measured
by human need' . Just as the values of exchangeable goods 'are proportionate
to human need, so they will be proportionate to money, itself proportionate to
human need'. Thus, Buridan remarkably set the agenda for determining the
value or price of money, on the same principles of utility that determine the
market prices of goods: an agenda which would only be fulfilled six centuries
later in 1912 by the Austrian Ludwig von Mises, in his Theory of Money and
Foreshadowing the Austrians Menger and von Mises, Buridan insisted that
an effectively functioning money must be composed of a material possessing
a value independent of its role as money, i.e. it must consist of a market
commodity originally useful for non-monetary purposes. Buridan then went
on to catalogue those qualities that lead the market to choose a commodity as
a medium of exchange or money, such as portability, high value per unit
weight, divisibility and durability - qualities possessed most strikingly by the
precious metals gold and silver. In that way, Buridan began the classification
of monetary qualities of commodities which was to constitute the first chap-
ter of countless money and banking textbooks down to the end of the gold
standard era in the 1930s.
Thus, not only did Jean Buridan found the theory of money as a market
phenomenon; he thereby took money out of the mystique of being solely a
creation of the state, and put it on a par with other goods as a product of the
A not very happy modern spin-off of Buridan's theory of volition emerged
in the 1930s as part of the indifference curve analysis. Buridan postulated a
perfectly rational ass who found himself equidistant between two equally
attractive bundles of hay. Indifferent between the two choices and therefore
unable to choose, the perfectly rational ass could choose neither and thereby
starved to death. What this example overlooked is that there is a third choice,
which presumably the ass liked the least: starving to death. So that it was
therefore 'perfectly rational' not to starve to death but rather to choose one of
the two bundles even at random (and then to proceed to the second bundle).3
Until recent years, conventional texts on the history of economic thought,
if they dealt with anyone at all before the mercantilists or Adam Smith,
briefly mentioned only two people: St Thomas Aquinas and Nicole Oresme
(1325-82). Although Oresme, a noted French mathematician, astronomer and
physicist, was one of the most important European intellectuals of the four-
teenth century, his contributions to economic thought scarcely deserve such
exclusive attention. Oresme was a pupil and follower of Jean Buridan, a
From Middle Ages to Renaissance 75

scholastic commenting on Aristotle and teaching in his turn at the University

of Paris and going on to become bishop of Lisieux. Oresme was moved to
write his well-known booklet, A Treatise on the Origin, Nature, Law and
Alterations ofMoney, in the 1350s, applying the teachings of his hard-money
mentor to the rash of monetary debasements indulged in by the kings of
France in the first half of the fourteenth century. In the centuries before paper
money and central banking were founded in the late seventeenth century, the
only way in which kings could gain revenue through monetary manipulation
was by debasement - changing the definition of the money unit by lightening
its weight in terms of the basic money, gold or silver. If, for example, the
money unit had been defined as 10 ounces of silver, the government could
use its monopoly of the coinage to redefine the money unit as 9 silver ounces,
and then pocket the difference in the course of recoinage. The extra ounces
would be employed to mint new coins for the king to use in wars, for the
building of palaces, and for other allegedly worthy causes.
The British currency unit, the pound sterling, got its name centuries ago by
originally being defined as simply one pound of silver. The process of de-
basement in Britain has proceeded so far that the 'pound' is now equal to less
than 1/4 a silver ounce.
Before the advent of paper money and central banking, then, debasement
was the only process by which the ruler could alter the currency to create a
greater supply of money (in terms of the money unit), and thereby cause
price inflation. The king was able to use his compulsory monopoly of the
coinage to manipulate repeated debasements for his own gain at the expense
of the rest of the public.
Oresme's most important contribution to monetary theory was to enunciate
clearly, for the first time, what came to be known as 'Gresham's law', that is,
the insight that if two or more moneys are legally fixed in relative value by
the government, then the money overvalued by the government will drive the
undervalued money out of circulation. Thus if the government decrees that,
say, I ounce of gold is legally worth 10 ounces of silver, whereas on the free
market it is worth 15, the people will stick their creditors and vendors with
the legally overvalued money (silver-the 'bad' money) while they hoard the
undervalued (gold - the 'good' money) or export it out of the country where
it can be sold at its market value. Gresham's law has often been boiled down
in common parlance into: 'bad money drives out good', but stated that way it
is paradoxical and unsatisfying. For it implies that while in all other market
products the good will outcompete the bad, there is some deep flaw in the
free market that causes it to prefer good money to bad. But as Ludwig von
Mises clarified in the early twentieth century, Gresham's law is the product
not of the free market but of government monetary control. Its fixing of
relative money value is a special case of the general consequence of any price
76 Economic thought before Adam Smith

control, i.e. shortage of a good in which maximum prices are imposed, and a
'surplus' where a minimum price is enforced. In the case of money, in our
example, gold suffers a maximum price control and therefore a shortage,
while the value of silver is kept up artificially and therefore goes into surplus
relative to gold.
The first formulation of Gresham's law was that of the satiric ancient
Greek playwright, Aristophanes, who, in The Frogs, states characteristically:
'In our Republic bad citizens are preferred to good, just as bad money
circulates while good money disappears' .4 Oresme, however, put the law in a
cogent and correct manner, emphasizing that the monetary disruption is a
function of government price-fixing: 'if the fixed legal ratio of the coins
differs from the market value of the metals, the coin which is underrated
entirely disappears from circulation, and the coin which is overrated alone
remains current'. .
In his Treatise, Nicole Oresme was moved to apply his mentor Buridan's
metallist monetary theory to attack the debasement policy of the French kings.
Oresme did not go so far as to denounce the king's coinage monopoly per se,
but he did accomplish the feat of taking the whole matter out of the kings'
carefully propounded mystique of 'sovereignty', converting the entire coinage
question to a matter of practical convenience. Since the king was not entitled to
cloak coinage in the mystique of royal prerogative and absolute royal will, he
was duty-bound to govern according to the best interests of the community. He
is therefore obliged to maintain the standards of weight and of coinage; fre-
quent alterations in such standards 'destroy respect and breed "scandal and
murmuring among the people and risk of disobedience"'. The definition of the
currency unit should therefore be a fixed ordinance. Frequent alterations and
debasements, Oresme pointed out, will cause money and coins to lose their
character as measures of value; and internal and external trade will be crippled.
Foreign merchants will be repelled, since they will no longer have good, safe
money to work with, while domestic traders will no longer have any firm
means of communication. Money could no longer be loaned out safely, and
there would be no way of correctly valuing money incomes.
Furthermore, since debased money will have a lower value at home, gold
or silver will be sent abroad where they will now have a higher market value.
Thus Oresme was perhaps the first to point out that money will tend to flow
to those areas and countries where its value is highest, and to leave those
countries where its value is lowest.
Nicole Oresme had no illusions about the reasons for the kings' repeated
debasements. As Oresme put it: if the king 'should tell the tyrant's usual lie
that he applies the profit from debasement to the pubf1c advantage, he must
not be believed, because he might as well take my coat and say he needed it
for the public service'.
From Middle Ages to Renaissance 77

Oresme also adds to Buridan's analysis of how commodities become money

on the market: he stresses easy portability, and that it should be of high value
per unit weight. He also points out that after a period of gold or silver being
weighed out in precise quantities for each transaction, people started to coin
the precious metals, with an inscription and a head on the coin to guarantee a
certain quantity of gold or silver in each coin. Gold, being a more valuable
money, will generally be used for larger transactions, while silver and even
copper may be used for smaller purchases.

3.4 The odd man out: Heinrich von Langenstein

One nominalist and student of Buridan, Heinrich von Langenstein the Elder
(also known as Henry of Hesse) (1325-97), while an uninfluential and minor
scholastic philosopher in his own and later centuries, made great mischief for
modern interpretations of the history of economic thought. Langenstein, who
taught first at the University of Paris and then at Vienna, began in his Treatise
on Contracts by analysing the just price in the mainstream scholastic manner:
just price is the market price, which is a rough measure of the human needs
of consumers. This price will be the outcome of individuals' calculations
about their wants and values, and these in turn will be affected by the relative
lack or abundance of supply, as well as by the scarcity or abundance of
Having said this, Langenstein proceeded to contradict himself completely.
In a highly unfortunate contribution to the history of economic thought,
Langenstein urged local government authorities to step in and fix prices.
Price-fixing would somehow be a better path to the just price than the inter-
play of the market. Other scholastics had not exactly opposed price-fixing;
for them, the market price was just whether it was set by the common
estimate of the market or by the government. But it was at least implicit in
their writings that the free market was a better (or at the very least an equally
good) path to discovering the just price. Langenstein was unique in positively
advocating government price-fixing.
Moreover, Langenstein added another economic heresy. He counselled the
authorities to fix the price so that each seller, whether merchant or craftsman,
could maintain his status or station in life in the society. The just price was
the price which maintained everyone's position in the style to which he had
become accustomed - no more and no less. If a seller tried to charge a price
to advance beyond his station, he was guilty of the sin of avarice.
Langenstein was the odd man out among the scholastics and late medieval
thinkers. No one has been found to second the 'station in life' concept of the
just price. Indeed St Thomas Aquinas himself effectively demolished this
view when he trenchantly declared
78 Economic thought before Adam Smith

In a just exchange the medium does not vary with the social position of the
persons involved, but only with regard to the quantity of the goods. For instance,
whoever buys a thing must pay what the thing is worth whether he buys from a
pauper or a rich man.

In short, on the market prices are the same to all, rich or poor, and further-
more this is a just method of establishing prices. In the bizarre Langenstein
view, of course, a wealthy seller of the same product would be obliged to sell
it for a far higher price than a poor seller, in which case it is unlikely that the
wealthy man would last long in the business.
As far as can be determined, no medieval or renaissance thinker adopted
the station in life theory, and only two followers adopted the price-fixing
position. One was Matthew of Cracow (c.1335-141 0), professor of theology
at Prague and later rector at the University of Heidelberg and archbishop of
Worms, and particularly Jean de Gerson (1363-1429), nominalist and French
mystic who was chancellor of the University of Paris. Gerson, however,
ignored the station in life notion and reverted to the thirteenth century view
of John Duns Scotus that the just price is the cost of production plus compen-
sation for labour and risk incurred by the supplier. Gerson therefore urged
that the government fix prices to force them to conform to the allegedly just
price. Indeed, Gerson was a fanatic on price-fixing, advocating that it be
extended from its customary sphere in wheat, bread, meat, wine and beer, to
embrace all commodities whatsoever. Fortunately, Gerson's view also had
little influence.
Von Langenstein was scarcely important in his own or at a later day; his
great importance is solely that he was plucked out of well-deserved obscurity
by late nineteenth century socialist and state corporatist historians, who used
his station in life fatuity to conjure up a totally distorted vision of the
Catholic Middle Ages. That era, so the myth ran, was solely governed by the
view that each man can only charge the just price to maintain him in his
presumably divinely appointed station in life. In that way, these historians
glorified a non-existent society of status in which each person and group
found himself in a harmonious hierarchical structure, undisturbed by market
relations or capitalist greed. This nonsensical view of the Middle Ages and of
scholastic doctrine was first propounded by German socialist and state
corporatist historians Wilhelm Roscher and Werner Sombart in the late nine-
teenth century, and it was then seized upon by such influential writers as the
Anglican Socialist Richard Henry Tawney and the Catholic corporatist scholar
and politician Amintore Fanfani. Finally, this view, based only on the doc-
trines of one obscure and heterodox scholastic, was enshrined in conven-
tional histories of economic thought, where it was seconded by the free
market but fanatically anti-Catholic economist Frank Knight and his follow-
ers in the now highly influential Chicago School.
From Middle Ages to Renaissance 79

The much-needed corrective to the older view has at last become dominant
since World War II, led by the enormous prestige of Joseph Schumpeter and
by the definitive research of Raymond de Roover.

3.5 Usury and foreign exchange in the fourteenth century

The charging of interest on a loan continued to be condemned totally as usury
by the mainstream of scholastic writing: only a minority followed Cardinal
Hostiensis and Olivi in allowing lucrum cessans - return on investment
foregone - and then only for a charitable loan and not for professional
money-lenders. Foreign exchange transactions fared no better, the main-
stream of scholastics, including St Thomas, simply condemning them out-
right as usurers and as trying to charge interest on barren money.
By the thirteenth and fourteenth century, however, bills of exchange were
coming into prominence as credit instruments, particularly in foreign ex-
change dealings. Sophisticated forms of foreign exchange transactions devel-
oped, in which dealers could charge and pay interest on credit, but such
transactions were formally disguised as purchases or sales of foreign curren-
cies. Again, most scholastics continued to condemn exchange dealings, but a
courageous minority arose during the fourteenth century to champion these
now pervasive transactions, in which the Church itself had for a long time
been engaged. It started weakly with Aquinas's chief personal disciple, Giles
of Lessines, who while confused about the foreign exchange market, did
speak of risk as justifying these credit transactions and also showed that the
exchange dealer gives something of 'more utility' to his customer than what
the customer pays, entitling him to an extra charge.
The main defence of the foreign exchange market was launched by the
distinguished Franciscan Alexander Bonini, also known as Alexander of Al-
exandria or Alexander Lombard. Bonini had an academic career at the Uni-
versity of Paris, then lectured at the papal court in theology, and finally
served as the Franciscan provincial in his native Lombardy, the site of the
most notorious usurers of the day. In his Treatise on Usury, a lecture given at
Genoa in 1307, Alexander, while attacking usury in the usual way, presented
a thoroughgoing defence of the foreign exchange transactions with which he
was familiar. Attacking the Aristotelians, Alexander pointed out that money
cannot have only one function, of serving as a barren medium of exchange,
since there are many coins and these coins must be exchanged. The value of
the coins thus traded, furthermore, is properly determined not by law but by
the weight and the content of the coins. Alexander also adopted Giles of
Lessines's insight that the dealer provides more utility to his customer than
he receives in the money transactions. As for credit transactions in foreign
exchange, Alexander Lombard did not defend them all, but provided a lucrum
cessans defence for the changes in the value of a money between the begin-
80 Economic thought before Adam Smith

ning and the end of the transaction. Indeed, Alexander was one of the first to
point out that the demand for money can and does vary over time, giving rise
to changes in the value of money. Lucrum cessans provided the entering
wedge for the scholastic justification of the main method by which the usury
prohibition was evaded during and after the High Middle Ages.
It is illuminating that Alexander had begun his defence with the practical
point that 'the Church always condemns and pursues usurers, but it does not
condemn and pursue the exchange dealers, but, rather, fosters them as is
apparent in the Roman Church' .
Alexander Lombard's defence of the foreign exchange market was re-
peated verbatim by his disciple and successor as Franciscan provincial of
Lombardy: Astesanus (d. 1330). Astesanus, like his mentor, came from Lom-
bardy, specifically from Asti, one of the principal locations of the leading
international usurers. His main work was his Summa (1317). Like his pre-
decessor, Astesanus was impressed by the fact that 'the Roman Church
fosters the exchange dealers'. Furthermore, he adds to Alexander's reasoning
a frank defence of lucrum cessans, which he was one of the first theologians,
as distinct from canonists, to embrace.
Among the prominent fourteenth century writers we have already dis-
cussed, Heinrich von Langenstein, as we might expect, denounced all foreign
exchange dealers as usurers per se. Even Nicole Oresme simply repeated the
Aristotelian shibboleth that the trade of money for money is unnatural be-
cause money is barren. While not precisely declaring exchange transactions
to be usurious per se, Oresme, in a flight of hate, denounced foreign ex-
change as 'vile', as an occupation that stains the soul just as cleaning sewers
stains the body.
In contrast, however, Jean Buridan, Oresme's mentor, engaged in a de-
fence of foreign exchange, distinguishing two kinds of exchange, one· where
the dealer 'gets only as much as he gives' - perfectly worthy according to the
Aristotelian-Thomist tradition - and another where the dealer 'takes more
than he gives'. But here Buridan makes another might leap in tearing down
some of the irrational barriers that the scholastics had drawn up against
monetary transactions. For even the latter kind of transaction, declared Buridan,
may be legitimate, even if there is no equivalent in exchange, provided the
exchange promotes the 'common good'. While not used for ordinary usury,
Buridan's new concept sowed the seeds for total justification of the foreign
exchange bankers.
At the turn of the fifteenth century, a thoroughgoing defence of exchange
contracts was set forth by the sophisticated Florentine lay canon lawyer
Lorenzo di Antonio Ridolfi (1360-1442). Ridolfi was a lecturer at the Ath-
enaeum in Florence and was at one time ambassador of the Florentine Re-
public. Just as Lombard was unwilling to condemn a practice encouraged by
From Middle Ages to Renaissance 81

the Church, so Ridolfi declared his unwillingness to condemn an occupation

pervasive in his native Florence. Developing the insight of Lombard, Ridolfi,
in his 1403 treatise on usury, emphasized that the value of money can differ
from one place to another as well as over time. These differences are the
result of changes in the demand for money, fluctuations of the demand
relative to the supply. and alterations in the metallic content of the coinal!e.
These variations justify foreign exchange dealings as well as credit transac-
tions within them. Thus, Ridolfi developed the theory which showed that the
value of money, like any other commodity, is determined by the interactions
of its demand and supply, and that it too can vary in value over time and

3.6 The worldly ascetic: San Bernardino of Siena

The great mind, and the great systematizer, of scholastic economics was a
paradox among paradoxes: a strict and ascetic Franciscan saint living and
writing in the midst of the sophisticated capitalist world of early fifteenth
century Tuscany. While St Thomas Aquinas was the systematizer of the
entire range of intellectual endeavour, his economic insights were scattered
in fragments throughout his theological writings. San Bernardino of Siena
(1380-1444) was the first theologian after Olivi to write an entire work
systematically devoted to scholastic economics. Much of this advanced thought
was contributed by San Bernardino himself, and the highly advanced subjec-
tive utility theory was cribbed word for word from the Franciscan heretic of
two centuries earlier: Pierre de Jean Olivi.
San Bernardino's book, written as a set of Latin sermons, was entitled On
Contracts and Usury, and was composed during the years 1431-33. The
treatise began, quite logically, with the institution and justification of the
system of private property, proceeded to the system and the ethics of trade,
and continued to discuss the determination of value and price on the market.
In ended with a lengthy discussion of the tangled usury question.
San Bernardino's chapter on private property was nothing remarkable.
Property was considered artificial rather than natural, but still vital for an
efficient economic order. One of Bernardino's great contributions, however,
was the fullest and most cogent discussion yet penned on the functions of the
business entrepreneur. In the first place, the merchant was given an even
cleaner bill of health than had been given by Aquinas. Sensibly, and in
contrast to early doctrines, San Bernardino pointed out that trade, like all
other occupations, could be practised either licitly or unlawfully. All callings,
including that of a bishop, provide occasions for sin; these are scarcely
limited to trade. More specifically, merchants can perform several kinds of
useful service: transporting commodities from surplus to scarce regions and
countries; preserving and storing goods to be available when the consumers
82 Economic thought before Adam Smith

want them; and, as craftsmen or industrial entrepreneurs, transforming raw

materials into finished products. In short, the businessman can perform the
useful social function of transporting, distributing, or manufacturing goods.
In his justification of trade, San Bernardino finally managed to rehabilitate
the lowly retailer, who had been scorned ever since ancient Greece. Importers
and wholesalers, Bernardino pointed out, buy in large quantities and then
break bulk by selling by the bale or load to retailers, who in turn sell in
minute quantities to consumers.
Realistically, Bernardino did not condemn profits; on the contrary, profits
were a legitimate return to the entrepreneur for his labour, expenses and the
risks that he undertakes.
San Bernardino then goes into his trenchant analysis of the functions of the
entrepreneur. Managerial ability, he realized, is a rare combination of compe-
tence and efficiency, and therefore commands a large return. San Bernardino
lists four necessary qualifications for the successful entrepreneur: efficiency
or diligence (industria), responsibility (solicitudo), labour (labores), and as-
sumption of risks (pericula). Efficiency for Bernardino meant being weIl-
informed about prices, costs, and qualities of the product, and being 'subtle'
in assessing risks and profit opportunities, which, Bernardino shrewdly ob-
served, 'indeed very few are capable of doing'. Responsibility meant being
attentive to detail and also keeping good accounts, a necessary item in busi-
ness. Trouble, toil, and even personal hardships are also often essential. For
all these reasons, and for the risk incurred, the businessman properly earns
enough on successful investments to keep him in business and compensate
him for all his hardships.
On determination of value, San Bernardino continued in the mainstream
scholastic tradition, with value and the just price being determined by the
common estimation of the market. Price will fluctuate in accordance with
supply, rising if supply is scarce and falling if abundant. Bernardino also has
a penetrating discussion of the influence of cost. Cost of labour, skill and risk
do not affect price directly, but will affect the supply of a commodity, and
ceteris paribus (other things being equal - a phrase used by San Bernardino)
things requiring greater effort or ingenuity to produce will be more expensive
and command a higher price. This insight prefigures the Jevons/Austrian
analysis of supply and cost over five centuries later.
As in the case of other scholastics, the common estimation of the market
was held to be the common market price (but not a price set by individual
free bargaining). The government was considered able to fix a common
market price by compulsory regulation, but this possibility, as in the case of
most other scholastics, was dismissed quickly.
As we have seen, San Bernardino took over word for word the remarkable
subjective utility theory of value published (and previously neglected) by the
From Middle Ages to Renaissance 83

Franciscan Pierre de Jean Olivi. Bernardino's significant contribution to the

theory of the just-as-market price was to apply it to the 'just wage'. Wages
are the price of labour services, Bernardino pointed out, and therefore the
just, or market wage will be determined by the demand for labour and the
available supply of labour on the market. Wage inequality is a function of
differences of skill, ability and training. An architect is paid more than a
ditch-digger, Bernardino explained, because the former's job requires more
intelligence, ability and training, so that fewer men will qualify for the task.
Skilled workers are scarcer than unskilled, so that the former will command a
higher wage.
In a sophisticated discussion of foreign exchange, Bernardino put his im-
primatur on transactions that were the dominant way in which hidden interest
was charged for a credit transaction. Here, Bernardino followed the latitudi-
narian view of his master Alexander Lombard. Generally, exchange transac-
tions were conversions of currencies and not loans. Furthermore, usury was
only a certain and riskless interest on a loan; foreign exchange rates fluctu-
ated and were therefore unpredictable. This was technically true, but gener-
ally lenders received interest on exchange transactions, since the money
market was structured to favour the lender in this way. Bernardino also
pointed out that conversion of currencies was necessary because of the great
diversity of currencies, and because the coinage of one country was not
acceptable elsewhere. The money-exchangers, therefore, performed a useful
function by enabling foreign trade, 'which is essential to the support of
human life', and by transferring funds from one country to another without
requiring the actual shipping of specie.
San Bernardino of Siena was a fascinating and paradoxical combination of
brilliant, knowledgeable, and appreciative analyst of the capitalist market of
his day, and an emaciated ascetic saint fulminating against worldly evils and
business practices. Bernardino was born in 1380 to a high official of Siena;
his father, Albertollo degli Albizzeschi, was governor of the town of Massa
for the Republic of Siena. Bernardino's mother also belonged to a prominent
local family. Joining the strictly ascetic order of the Observant Franciscans,
Bernardino soon became noted as a persuasive and highly popular travelling
orator, preaching throughout northern and central Italy. In the 1430s,
Bernardino was appointed vicar general of the Observant Franciscans. Three
times in his lifetime, San Bernardino was offered bishoprics (in Siena, Urbino
and Ferrara), and each time he refused this honour, since he would have had
to give up his preaching.
Some of Bernardino's anti-worldly preaching dwelt on problems of per-
sonal morality; thus, he deplored the practice of travelling merchants staying
away from home for long periods, and then defiling themselves by living in
carnal sin or even sodomy, which the saint habitually referred to as 'filth'.
84 Economic thought before Adam Smith

Indeed, in his youth, Bernardino punched a man who had made homosexual
But Bernardino's main contradiction between sophisticated analyst of busi-
ness and denouncer of business practice lay in his fulmination against usury.
Surrounded by the home of usury in Tuscany, San Bernardino, in common
with so many scholastics, found that realism stopped short at the usury door.
On the usury question, the saint's brilliant analysis and benign view of the
free market failed him, and he fulminated almost in a frenzy: usury was a vile
infection, permeating business and social life. Whereas other scholastics had
taken seriously the objection that Church and society depended upon usury,
Bernardino did not care. No: it could not be. All those holding that usury was
economically necessary were committing the sin of blasphemy, since they
would therefore be saying that God had bound them to an impossible course
of action. Abolish the charge of interest, Bernardino opined, and people
would then lend freely and gratuitously; and besides far too much is being
borrowed now, for frivolous and vicious purposes. Usury, the saint thun-
dered, destroys charity; it is a contagious disease; it stains the souls of all in
society; it concentrates all the money of the city into a few hands or drives it
out of the country; and what is more, it justly brings the wrath of God upon
the city, and invites the Four Horsemen of the Apocalypse.
One can only stand in awe at the fury of unreason in which this truly great
thinker indulged himself on the usury issue. Ranting about the usurer daring
to 'sell time', Bernardino went further than his predecessors in insisting that
only Jesus Christ 'knows the time and the hour. If therefore it is not ours to
know the time, much less is it ours to sell it'. Is keeping watches and clocks
therefore a mortal sin? Bernardino winds up in a fit of almost hysterical
frenzy at the hapless usurer:

Accordingly, all the saints and all the angels of paradise cry then against him [the
usurer], saying 'To hell, to hell, to hell.' Also the heavens with their stars cry out,
saying, 'To the fire, to the fire, to the fire.' The planets also clamor, 'To the depths,
to the depths, to the depths.'

And yet, despite all this, San Bernardino added his great weight to the
concept that would eventually scuttle the usury prohibition: lucrum cessans.
Following Hostiensis and a minority of fourteenth century scholastics,
Bernardino admits lucrum cessans: it was all right to charge interest on a loan
which would be the return sacrificed - the opportunity foregone - for a
legitimate investment. It is true that Bernardino, like his predecessors, lim-
ited lucrum cessans strictly to a charitable loan, and refused to apply it to
professional money-lenders. But he made an important analytic advance by
explaining that lucrum cessans is legitimate because in that situation money
is not simply barren money but 'capital'. As Bernardino put it, when a
From Middle Ages to Renaissance 85

businessman lends from balances which would have gone into commercial
investment, he 'gives not money in its simple character, but he also gives his
capital'. More fully, he writes that money then 'has not only the character of
mere money or a mere thing, but also beyond this, a certain seminal character
of something profitable, which we commonly call capital. Therefore, not only
must its simple value be returned, but a super-added value as well' .
In short, when money functions as capital, it is no longer barren or sterile;
as capital it deserves to command a profit.
There is something more. In the course of lengthy arguing against hidden
usury in various forms of contracts, the brilliant mind of San Bernardino
stumbles, for one of the first times in history, upon what later would be called
'time-preference': that people prefer present goods to future goods (i.e. the
present prospect of goods in the future). But he failed to recognize its impor-
tance, and dismissed the point. It was left to the late eighteenth century
Frenchman Turgot and then to the great Austrian economist Eugen von Bohm-
Bawerk to discover the principle in the 1880s and hence finally solve the age-
old problem of explaining and justifying the existence and height of the rate
of interest.

3.7 The disciple: Sant'Antonino of Florence

San Bernardino's major disciple was the highly influential and slightly younger
Sanl' Antonino of Florence (1389-1459). Much of Antonino's influence came
from his prolific writings, especially his enormous Thomistic Summa Moralis
Theologiae (1449), the first treatise in the new science of moral theology. In
moral theology, or casuistry, the theologian takes the abstract principles of
theology and ethics and applies them to the detailed empirical data of daily
life: in short, theology and morality were brought from the abstractions of the
study and applied to the details of everyday life.
Sanl' Antonino's pioneering Summa of moral theology proved to be ex-
traordinarily influential. It was frequently consulted for the next 150 years,
and went through 24 printings in that period. His shorter Confessionals
(1440), a guidebook for confessors, was reprinted 30 times in the same
century and a half.
There are striking parallels in the lives and personalities of Antonino and his
master Bernardino. Sant' Antonino was born the son of a minor official, the
notary of Florence, Ser Niccolo de Pierozzo dei Forciglioni. The son's first
name was Antonio, but he was universally called by the diminutive Antonino
because of his short stature, and the nickname is listed in the official Church
calendar of saints. Although in frail health, Antonino early joined the strict,
Observant branch of the Dominican Order. His administrative talents were
unusual and spotted quickly, and he soon became prior of the Dominican friary
of Cortona, and was then transferred to similar posts in Naples and Rome. After
86 Economic thought before Adam Smith

that, Antonino was appointed vicar-general of the Dominican friaries of Lom-

bardy in 1433, and four years later, also of all central and southern Italy. In
addition to his vicarate, Antonino continued as prior of San Marco in Florence.
In 1445, Pope Eugene IV appointed Sant'Antonino to the archbishopric of
Florence, possibly on the advice of the great Renaissance painter, Fra Angelico.
A humble man, Antonino followed Bernardino in stubbornly refusing to
accept the post. The pope issued stern commands for Antonino to accept, and
the story of a contemporary asserts that he only took the office under penalty
of excommunication. In any event, Sant' Antonino refused for the rest of his
life to wear episcopal robes and continued to wear the white habit and black
cloak of a simple Dominican friar. Ironically, upon his death in 1459, Antonino
was buried in full pomp and ceremony.
Despite his reluctance, Antonino became a distinguished administrator and
judge, daily making countless economic decisions. In Florence he became
steeped in knowledge of the financial and economic practices of the most
advanced capitalist centre of his day.
Sant'Antonino is habitually bracketed with Bernardino as two great scho-
lastic thinkers and economists. But Antonino was merely a popularizer and
casuist; in his analysis he simply repeated the views of the truly great and
creative thinker, San Bernardino. Both men were thoroughly familiar with
the economic practices of their day, and Antonino came from Florence, the
great banking centre of Europe. Yet both men were humble ascetics, and the
same tension and contradiction of worldly asceticism appeared in their works
and lives.
Generally, Antonino simply repeated Bernardino's analysis. In his discus-
sion of value theory, however, Antonino further stressed Aquinas's crucial
point that any exchange on the market is for the mutual benefit of both
parties, since each is better off than he was before. A voluntary sale is a just
one. And yet, Antonino seems more sympathetic than his mentor to govern-
ment price regulation which, where it exists, must be morally binding. Any
black market price over a legal maximum is a sin.
On the just wage, Antonino echoes Bernardino and adds material based on
his extensive knowledge of the great Florentine woollen industry. The wage
of a labourer is properly determined by common market estimation, and any
attempt to form a union of workers would be harmful interference. This view
implicitly endorsed the Florentine practice of outlawing wool-worker unions
as unlawful 'conspiracies'. The monopolistic Wool Guild of clothiers, how-
ever, was legal; not surprisingly, since it controlled the government of Flor-
ence. The word 'guild' does not appear in Antonino's work on labour condi-
tions; perhaps he felt it more prudent to ignore this controversial issue.
Despite the discipleship, there were definite though subtle differences be-
tween the two worldly saints. Even though Antonino was more knowledge-
From Middle Ages to Renaissance 87

able of the business world, he was, paradoxically, considerably more moralis-

tic. Thus, one of Antonino's numerous works was a pamphlet, On Womens
Fashions (De ornate mulierum), in which he fulminated at great length
against women's use of rouge, false hair, fancy hairdos, and other fripperies.
His talent for moralism was of course reinforced by his pioneering work in
casuistry. Likewise he sounded off on artists, condemning all except religious
art, especially exempting the work of his friend, Fra Angelico. Antonino was
particularly upset because paintings of non-religious subjects gave artists the
opportunity to depict nude women, 'not for the sake of beauty but to arouse
libidinous feelings'. (Antonino did make the intelligent observation, how-
ever, that the price of paintings is determined by the artist's skill rather than
by the amount of labour involved.) Antonino's censorious views also reached
into music, where he called for going back to the austere Gregorian chant and
eliminating the sinful introduction of counterpoint and popular and even
lewd ballads.
In more strictly economic concerns, Antonino's heightened moralism was
also evident. In contrast to his master, Antonino largely fulminated against
foreign exchange transactions as implicit usury. As Raymond de Roover
wonderingly remarks: 'This advice, if followed, would have abolished bank-
ing altogether, a rather strange attitude on the part of the archbishop of the
leading banking center in Western Europe. Most of the theologians were
more lenient, although less consistent. .. '5
Antonino's ranting against usury was fully as exuberant as Bernardino's,
and was heightened by the fact that he served as the Apostolic commissary
for the repression of usury in Tuscany. Antonino is the all-out denouncer of
usury, drawing together all possible arguments with their most severe inter-
pretation. As Professor Noonan states,

... by being more systematic, Antonino is more severe than many of his
predecessors ... Antonino draws together all the strict rules of the early usury
teaching into a tight set of rules. No later writer of note will be as severe, as
uncompromising, as true to the logic of the earlier conceptions as he. 6

Furthermore, Antonino took no back seat to Bernardino in his hysterical

ranting against usury. Usury is 'diabolic'; it is the great harlot of Apocalypse
17, 'who sitteth upon many waters, with whom the kings of the earth have
committed fornication'. Not only direct usurers but all who cooperate in
usury are 'worthy of eternal death'. Usury, to Antonino, is a worse sin than
adultery or murder because it continues on and on, whereas the former sins
are only intermittent. The usurer is in a state of 'perpetual sin' . Not only that:
usury damns the heirs of the sinner, since the sin is not wiped out until the
usurer or his estate makes restitution by giving back the interest charge.
Usury, to Antonino, is everywhere, all-pervasive.
88 Economic thought before Adam Smith

And yet Antonino, too, admits lucrum cessans as a legitimate source of an

interest charge. He is so worried about hint of usury, however, that he de-
clares that in practice lucrum cessans must never be advised.
Tragically, the subjective theory of utility, developed by Pierre de Jean
Olivi in the thirteenth century, rediscovered by San Bernardino two centuries
later, and spread far and wide by his disciple Sanl' Antonino, died with the
worldly Florentine saint. With minor exceptions, even the late Spanish scho-
lastics of the sixteenth century, so much in the Thomist and utility tradition,
did not regain these heights. It was left to the Austrian School of the late
nineteenth century to independently replicate and go beyond the subjective
theory of value of Olivi, and it was left to the 1950s for this line of scholastic
thought to be rediscovered.

3.8 The Swabian liberals and the assault on the prohibition of usury
At about the same time that San Bernardino was developing his great work, a
relatively obscure German Dominican was independently setting forth a similar
analysis. Johannes Nider (1380-1438) was a Swabian who taught theology at
the University of Vienna, and led a reform of the Dominican Order in south-
ern Germany. Nider's brief treatise, On the Contracts of Merchants (De
Contractibus Mercantorum) was written about 1430, and published posthU-
mously in Cologne about 1468; it was reprinted frequently for the rest of the
fifteenth century.
Nider begins by justifying the profits of merchants. Recognizing the entre-
preneurial role of the merchant, Nider stressed that trade requires market
knowledge, and securing that knowledge requires industry, diligence and
luck. Business incomes are justified by expenses, care and risks. In analysing
market price, Nider emphasizes subjective utility as the determinant. Nider,
like Olivi and Bernardino, distinguished between the objective utility inher-
ent in a good, and subjective utility, the status of that good 'in the estimation
of men'. Nider was clear that only the latter decisively determined the just
market price. Anticipating Jevons four centuries later, Nider suggests that a
change in supply will alter price by changing the utility assigned to it. That
common market price determines the just price is clear in Nider: 'The proper
value of a thing depends upon the ways buyers or· sellers may think about
prices'. Yet, where there is no common market, Nider joins previous scholas-
tics in stating that sellers may adopt a cost-plus approach to find out the just
price that they may ask for.
While only subjective utility is treated in determination of price, there are
disquieting signs in Nider of Langensteinian 'status' arguments in justifying
business income. For businessmen's incomes, in addition to being deter-
mined by the economic factors mentioned above, must also be decided 'in
proportion to the nobility' of the effort - a prelude to Nider's making clear
From Middle Ages to Renaissance 89

that the work of the soldier is nobler than that of the merchant and therefore
deserves a higher reward. This is a throwback not just to Langenstein but to
ancient Greek veneration of the martial as against the productive arts.
In discussing money, Nider is firm in justifying the activities of money-
changers. There is no nonsense about usury here. Nider points out that the
exchange of currency is a 'kind of selling and buying', and demonstrates
even more cogently that the value of money, like the value of other commodi-
ties, also varies in the common estimation of the market. While, following
Aquinas, the value of money usually changes less radically than the value of
a particular good, change it does nevertheless, merchants incurring legitimate
profits or losses from such variation.
Nider writes trenchantly of 'the conversion, or exchange of money or of
other things, which is, as it were a kind of selling and buying of one currency
for another, and presents, so to speak, the same moral problems as does
commerce in goods ... '
Far more significant than Nider was the great fifteenth century scholastic
and fellow Swabian Gabriel Biel (1430-95), professor of theology at the new
University of Tiibingen, in Southwest Germany. Biel was a distinguished
nominalist and Ockhamite - in fact, the German Ockhamites of the fifteenth
century were known as Gabrielistae. And yet, recent research has discovered
that Biel was essentially a Thomist in his belief in a rational and objective
natural law ethic. Indeed, he echoed the belief of his fellow 'Ockhamite' of
the previous century, Gregory of Rimini, in the highly rationalistic belief that
the natural law was eternal and would exist even if God did not. Furthermore,
man by his unaided reason can discern this natural law and reach the right
conclusions on his proper conduct.
One of Biel's contributions was to deliver a crystal-clear statement of the
scholastic insight that each party to an exchange engaged in the action for
mutual subjective benefit. Following Jean Buridan, his fellow nominalist of
the previous century, Biel's analysis was cogent and concise: 'For the buyer
who desires a good would not buy, unless he hoped for greater satisfaction
from the good than from the money he paid over; nor would the seller sell,
unless he hoped for a profit from the price'. There had been no clearer
demonstration before Biel that every exchange involves an expected mutual
benefit by each party to that transaction, and that the satisfaction of the buyer,
at least, is purely subjective, though the seller's may be translated into a
monetary profit. There would be no real improvement upon Biel until the
advent of the Austrian School in the late nineteenth century.
A follower of his fellow Ockhamites Jean Buridan and Nicole Oresme,
Biel, in his Treatise on the Power and Utility of Moneys, repeated their
metallist insights about the value of money and their attack on governmental
debasement. Biel also insists, with Buridan, that a sound money must be
90 Economic thought before Adam Smith

composed of material with a use independent of its service as money. Biel

regards debasement by a king as equivalent to theft: 'if a prince should reject
valid money, in order that he may buy it up more cheaply and melt it, and
then issue another coinage of less value, attaching the value of the former
currency to it, he would be guilty of stealing money and is required to make
restitution' .
Furthermore, Biel provided a more sophisticated explanation and justifica-
tion than previously available of the workings of the foreign exchange mar-
ket. In his commentary on the Sentences (1484), Biel noted that a bank that
accepts a bill of exchange permits the drawer of the bill to obtain cash in
another city, and thereby provides the important service of 'virtual transpor-
tation' of the money. The drawer of the bill is relieved of the cost and the risk
of moving the money himself. It is therefore licit for the banker, as lender, to
profit on purchasing a foreign bill of exchange. In this way, Biel greatly
widened the legitimacy of exchange transactions, for lender as well as bor-
rower, thus strengthening the theoretical insight that the value of money
varies as do particular goods.
But the great significance of Gabriel Biel in the history of economic
thought was that he began the smashing of the usury prohibition that had held
economic thought in thrall since the early centuries of the Christian era. In
addition to completing the liberation of the foreign exchange market from the
taint of usury, Biel launched the justification of insurance contracts. For if it
was sinful and usurious to own property or a right without bearing risk (such
as the grantor of a pure loan) then what of a man who had purchased an
insurance contract, and therefore was able to transfer risk to the insurer? The
defence of insurance Biel takes over from Angelus Carletus de Clavasio,
vicar-general of the Observant Franciscans, who had defended riskless insur-
ance contracts in his Summa Angelica at the same time that Biel was writing
his treatise.
Biel's main contribution in weakening the usury prohibition was his justifi-
cation of the census contract - the purchase of an annuity - and justifying it
in its widest possible form. Thus, purchase of an annuity was considered licit
as a right to fruitful money as was an insured or guaranteed annuity. Also the
buyer was allowed to redeem the annuity, a concession very close to permit-
ting a lender to reclaim the principal of his loan after he has received a return
in instalments.
Thus Biel came very close to justifying credit transactions charging inter-
est. Explaining the fact that the seller of an annuity will often be willing to
pay a high annual charge in order to get ready cash (i.e. pay interest on a
loan) Biel points out with great cogency that both parties to this as any other
transaction expect to benefit: 'For a buyer desiring merchandise, unless he
hoped for more advantage from the merchandise than from the money he
From Middle Ages to Renaissance 91

gave, would not buy; nor would a seller sell, unless he hoped for profit from
the price'.
But the most comprehensive and systematic assault on the usury prohibi-
tion came from Gabriel Biel's most distinguished student and his successor in
the theology chair at the University of Tiibingen, Conrad Summenhart (1465-
1511), who had also been a student at the University of Paris. The critique
came in Summenhart's massive Treatise on Contracts (Tractatus de
Contractibus) (1499).
Summenhart's contribution was twofold: first, in enormously widening all
the possible exceptions to the usury prohibition, e.g. the census and lucrum
cessans; and second, in launching a blistering direct assault on all the time-
honoured arguments against whatever usury contracts remained. On the first,
Summenhart developed the argument for insured or guaranteed partnerships
far more subtly and extensively than before. He also widened the lucrum
cessans exception far more than anyone had ever done. Money is fruitful,
Summenhart declared boldly, it is the merchant's tool, which he can make
fruitful by the use of his labour. Consequently, the merchant should be
compensated for loss of the use of his money just as a farmer should be
recompensed for the loss of his fields. Unfortunately, however, Summenhart's
widening of lucrum cessans was still limited, as among the earlier scholas-
tics, to loans made out of charity.
The boldest loosening of the usury bonds by Summenhart was in his radical
defence of the widest possible interpretation of census contracts. Here
Summenhart justified many of the credit transactions then used in Germany.
Coupled with his development of the idea of the changeable value of money,
this meant 'the emptying of the usury prohibition of all practical significance' .7
Money, declared Summenhart, may licitly be trafficked in for profit. Further-
more, he asserted that a census is not a (sinful) loan because the right to money
is a good of another kind than the money exchanged. But in that case,
Summenhart asks himself, couldn't a usurer say the same thing, and simply
state that the right to money he was demanding in exchange was a good of a
different kind than the money loaned? Astonishingly, Summenhart replied, this
was all right, provided that the lender did not intend this to be usury, and was
himself really convinced that he was buying the right to money which was a
different good than the money itself. But if usury was only subjective intention
and not the objective fact of a loan charging interest, then there was no
objective way of identifying or enforcing the prohibition against usury! In this
way alone, Summenhart effectively destroyed the prohibition against usury.
But this was not all. For Summenhart explicitly declared that the purchase
by someone of a discounted debt is not a usurious loan because it is only the
purchase of a right to money. The purchase of a debt was licit in the same
way as a census. Furthermore, the 'purchase of a debt' could be that of a
92 Economic thought before Adam Smith

newly constituted debt, and not simply the purchase of a previous debt. This,
too, effectively ended the usury prohibition.
Moreover, in approving 'debt purchase' contracts, Summenhart came close
to understanding the primordial fact of time-preference, the preference of
present over future money. When someone pays $100 for the right to $110 at
a future date, both parties estimate present money more highly than money
payable at a future date. The 'buyer' (lender), furthermore, doesn't really
profit usuriously from the loan because he values the future $110 as worth
$100 at the present time, so that 'the price and the merchandise are equal in
fact and in the estimation of the buyer' .
Then, tackling the arguments for usury directly, Summenhart presents 23
standard natural law arguments against usury, and demolishes them all, leav-
ing only two shaky formal arguments; while he also puts forth strong objec-
tions of his own against the usury ban. As Professor Noonan concludes,
Summenhart's 'examination ends in a rejection of the past. Usury is left
assailed in name alone. The early scholastic theory of usury is abandoned'.8
Summenhart's argument for usury is comprehensive. Contrary to St Thomas,
the usurer is charging not for the borrower's use of his money, but for his own
lack of use. If it is replied that the borrower's restoring of the principal
restores to the lender the power of use, Summenhart cogently replies, again
sensing time-preference: 'But he does not restore to him [the lender] the use
of the intervening time, so that he will be able to use it [the money] for that
intervening time ... '. Thus interest on a loan becomes a legitimate charge for
the foregone use of money during the time period of a loan. It is clear, at least
implicitly, that Conrad Summenhart has magnificently demonstrated the jus-
tice of 'usury' , of interest on a loan.
On the fixed value of money as an argument against usury, Summenhart
repeats and develops the argument of earlier critics that the value of money
varies over time. Furthermore, on the charge of risklessness of a money loan,
Summenhart originates an argument potentially fatal to the usury ban. He
points out correctly that the lender is never without risk; he always bears the
risk of the borrower going bankrupt. The borrower also has the opportunity
of earning more profits from the loan than the interest he has to pay the
lender. Furthermore, Summenhart neatly smashed the Aristotelian argument
that money by its nature was 'meant' to be used only as a medium of
exchange and not to command interest. Summenhart boldly declares that the
argument is simply absurd. Does one then commit sin by using wine to put
out a fire, or by storing money in a shoe? There is nothing in the natural law
that demonstrates that a material good must always be used for one particular
purpose rather than for another.
We are left, after Summenhart, with only two very weak arguments against
usury: the mere fact that Aristotle said it was unnatural (an 'argument' which
From Middle Ages to Renaissance 93

Summenhart could only have meant sardonically), and the divine prohibition.
But since usury is really natural, Summenhart, as we have seen, is willing to
construe the divine prohibition so narrowly that it virtually disappears; after
Summenhart, the usury ban is finished.
Unfortunately for the credibility of scholastic economics, however, the
sixteenth century scholastics, superb as they were in many areas of econom-
ics, did not accept the bold challenge of Conrad Summenhart to scrap the
usury ban completely.
In some cases, particularly in his justification of the guaranteed partnership
contract, Summenhart held back from full approval, counselling prudentially
against contracts, though licit, which might scandalize the community. It was
left to Summenhart's eminent student, Johann Eck, to carry the Summenhartian
revolution through to its completion. Eck, professor of theology at the Uni-
versity of Ingolstadt near the financial centre of Augsburg in Bavaria, was
soon to find his greatest fame in arguing the Catholic case against Martin
Luther. Augsburg was then the leading financial centre of Germany and the
home of the great bankers the Fuggers, who had captured the lucrative papal
banking business from the city of Florence. In 1514, the 28-year-old Eck, a
friend of the Fuggers, criticized his cautious fellow theologians for conceal-
ing the truth that the guaranteed partnership contract was fully licit, scandal
or no scandal. Arguing his case before a favourable audience of canonists at
the University of Bologna, Eck pointed out that merchants generally solicit
the guaranteed investment contract and therefore profit by it. Furthermore,
this contract had been in general use for 40 years, so that it should be
assumed that the guaranteed contract is licit unless proven otherwise. Also,
Eck added the modern sophisticated note that, after all, most capitalist inves-
tors in this contract are widows and orphans.
It should be noted that the eminent Scottish nominalist theologian, John
Major (1478-1548), dean of the faculty of theology at the University of
Paris, clearly assented to the controversial Eck-Summenhart defence of the
guaranteed investment contract.

3.9 Nominalists and active natural rights

The Dominicans, as we have seen, triumphed over the Franciscans on the
property rights question with Pope John XXII's great bull, Quia vir reprobus
(1329). Individual property rights were now officially established as natural,
stemming from God's granting man dominion over the earth. Despite William
of Ockham's attempt to refute John XXII, his nominalist followers took the
lead in developing this active natural property rights theory. Pierre d' Ailly
(1350-1420), and particularly his student and successor as chancellor of the
University of Paris, Jean Gerson (1363-1429), developed the theory. Thus, as
Gerson put it trenchantly in his De Vita Spirituali Animae (1402):
94 Economic thought before Adam Smith

There is a natural dominion as a gift from God, by which every creature has a ius
(right) directly from God to take inferior things into its own use for its own
preservation. Each has this ius as a result of a fair and irrevocable justice, main-
tained in its original purity, or a natural integrity. In this way Adam had dominion
over the fowls of the air and the fish in the sea... To this dominion the dominion
of liberty can also be assimilated, which is an unrestrained faculty given by
God ... 9

It is odd that this nominalist and mystic, after setting forth the view of
human rights as a dominion, should also hold, among a minority of scholas-
tics, that any mercantile profit over and above costs and risk is immoral, and
that the government should fix all prices to assure a just price.
The active rights theory was championed by the Gersonian Conrad
Summenhart, and then advanced further by the nominalist John Major. In his
commentary on the Sentences of Peter Lombard (1509), Major, a century
after Gerson, drew the logical conclusion that not only man's right and
dominion were natural but so too was private property. Major's student
Jacques Almain put it clearly (Aurea opuscula, c.1525): 'Natural dominion is
thus the dispositional power or faculty of using things which people can
employ in their use of external objects, following the precepts of the law of
nature - by which everyone can look after their own bodies and preserve
themselves. '
Throughout the fifteenth century, and into the sixteenth the active theory of
natural rights seemed to reign unchallenged.

3.10 Notes
1. The population decline was roughly uniform throughout western Europe, with the Italian
population falling from 10 to 7.5 million, France and the Netherlands from 19 to 12
million, Germany and Scandinavia from 11.5 to 7.5 million, and Spain from 9 to 7 million.
The largest percentage drop was in Great Britain, where the number of inhabitants fell from
5 to 3 million in this period.
2. Lionel Rothkrug, Opposition to Louis XIV: The Political and Social Origins (~r the French
Enlightenment (Princeton, NJ: Princeton University Press, 1965), p. 14.
3. On Buridan and modern indifference analysis, see Joseph A. Schumpeter, History of Eco-
nomic Analysis (New York: Oxford University Press, 1954), pp. 94n, 1064. For a critique,
see Murray N. Rothbard, Man, Economy and State (1962, Los Angeles: Nash Publishing
Co. 1970), I, pp. 267-8.
4. And more fully:

Oftentimes have we reflected on a similar abuse

In the choice of men for office, and of coins for common use;
For your old and standard pieces, valued and approved and tried,
Here among the Grecian nations, and in all the world beside,
Recognized in every realm for trusty stamp and pure assay,
And rejected and abandoned for the trash of yesterday;
For a vile, adulterate issue, drossy, counterfeit and base,
Which the traffic of the city passes current in their place.
Aristophanes, The Frogs
From Middle Ages to Renaissance 95

Quoted in 1. Laurence Laughlin, The Principles (~f Money (New York: Charles Scribner's
Sons, 1903), p. 420.
5. Raymond de Roover, San Bernardino (~l Siena and Sant'Antonino (~l Florence (Boston:
Baker Library, 1967), p. 37.
6. John T. Noonan, Jr, The Scholastic Analysis (~l Usury (Cambridge, Mass.: Harvard Univer-
sity Press, 1957), p. 77.
7. Ibid., p. 233.
8. Ibid., p. 340.
9. Richard Tuck, Natural Rights Theories (Cambridge: Cambridge University Press, 1979),
4 The late Spanish scholastics

4.1 The commercial expansion of the sixteenth century 99

4.2 Cardinal Cajetan: liberal Thomist 99
4.3 The School of Salamanca: the first generation 101
4.4 The School of Salamanca: Azpi1cueta and Medina 105
4.5 The School of Salamanca: the middle years 109
4.6 The late Salamancans 112
4.7 The learned extremist: Juan de Mariana 117
4.8 The last Salamancans: Lessius and de Lugo 122
4.9 The decline of scholasticism 127
4.10 Parting shots: the storm over the Jesuits 131
4.11 Notes 133

The late Spanish scholastics 99

4.1 The commercial expansion of the sixteenth century

The great secular depression of the fourteenth and first half of the fifteenth
century began to give way to economic recovery in the second half of the
fifteenth. The overland trade from the Mediterranean to northern Europe, cut
off by the French king's depredations against the fairs of Champagne, was
increasingly replaced by sea trade off the Atlantic coast. Vessels now went
through the Straits of Gibraltar and up the coast, increasingly sailing to
Antwerp and making that city the big trading centre in northern Europe
during the sixteenth century. Commerce moved away from the restrictions
and high taxation of Flemish Bruges, and shifted to and expanded in free
market Antwerp, where business and trade could flourish free of hampering
legislation, privileges, and high taxes. In addition, Atlantic ships headed
south and west, and the famous explorations and discoveries of the late
fifteenth century changed the face of world history by making European
countries world powers, and began to integrate Africa and the New World
into the European economy. Spain and Portugal, the leading explorers of the
new continents, became the dominant nation-states and empires of the six-
teenth century. Slowly but surely, the Italian city-states which had been in the
forefront of economic advance and the spearhead of Renaissance culture,
began to be left behind in the advance of economic and political power.
Along with commercial expansion came inflation, fuelled by the immense
increase of gold and silver brought to Europe by the Spaniards from the
newly found mines of the western hemisphere. An approximate tripling of the
stock of specie in Europe resulted in a century of inflation, with prices
tripling during the sixteenth century. The new money flowed first into the
main Spanish port of Seville, then into the rest of Spain, and finally into other
countries of Europe, and the geography of price rises followed accordingly.
As Atlantic powers, England and France grew in strength along with the
other Atlantic nations of western Europe. They were greatly aided by the end
of the destructive Hundred Years' War between the two nations in 1453. The
doctrines of the absolute state, previously limited largely to theorists and
rulers of the Italian city-states, now spread to all the nation-states of Europe.
Absolutism eventually triumphed throughout Europe by the early seven-
teenth century. The victory was fuelled, as we shall see below, by the rise of
Protestantism and a bit later of secularism, beginning in the sixteenth century.

4.2 Cardinal Cajetan: liberal Thomist

Late scholasticism was the product of the sixteenth century, the century that
ushered in the Protestant Reformation and the Catholic Counter-Reforma-
tion. If the thirteenth century was well described as the golden age of scho-
lastic philosophy, then the sixteenth century was its silver age, the era of a
shining renaissance of scholastic thought before the shades of night closed in
100 Economic thought before Adam Smith

for good. As we have seen, the fourteenth and fifteenth centuries saw the
emergence of nominalism and at least the weakening of the idea of a rational,
objective natural law - including a natural law ethics - discoverable by man's
reason. The sixteenth century witnessed a renascent Thomism, spearheaded
by one of the greatest churchmen of his age, Thomas De Vio, Cardinal
Cajetan (1468-1534).
Cardinal Cajetan was not only the pre-eminent Thomist philosopher and
theologian of his day; he was also an Italian Dominican who became general
of the Dominican Order in 1508. A cardinal of the Church, he was the pope's
favourite upholder of the faith in debates with the great founder of Protestant-
ism, Martin Luther. In his Commentary on Aquinas's Summa, Cajetan of
course endorsed the standard scholastic view that the just price is the com-
mon market price, reflecting the estimation of the buyers, and held that that
price will fluctuate upon changing conditions of demand and supply. In
attempting to purge scholastic economics of any trace of Langensteinian
'station in life' theory, however, Cajetan went further to criticize Aquinas for
denouncing accumulation of wealth beyond one's status as suffering from the
sin of avarice. On the contrary, declared Cajetan, it is legitimate for highly
able persons to move up the social ladder in a way that matches their attain-
ments. This candid endorsement of upward mobility in a free market was the
broadest attempt yet to rid scholasticism of all traces of the ancient contempt
for trade and economic gain.
In his comprehensive treatise on foreign exchange, De Cambiis (1499), the
great Cajetan set forth the fullest and most unqualified defence yet penned of
the foreign exchange market. Sweeping aside the dithering indecisiveness of
his fellow Dominican, Fra Santi Rucellai (1437-97), himself a former ex-
change banker and the son of a banker, the cardinal was firm and hard-hitting.
Since the role of the merchant has long since been established as legitimate,
then so should that of the exchange banker, who is simply engaging in a kind
of commodity transaction. Besides, modern trade could not function without
the foreign exchange market, and cities could not exist without trade. Hence
it is needful and right that the exchange market exist. As in other markets, the
customary market price is the just price.
In the course of his defence of the exchange market in De Cambiis,
Cajetan proceeded to advance the state of the art in monetary theory. He
showed trenchantly that money is a commodity, particularly when moving
from one city to another, and is therefore subject to the demand and supply
laws governing the prices of commodities. At this point, Cajetan made a great
advance in monetary theory, indeed in economic theory generally. He pointed
out that the value of money depends not only on existing demand and supply
conditions, but also on present expectations of the future state of the market.
Expectations of wars and famines, and of future changes in the supply of
The late Spanish scholastics 101

money, will affect its current value. Thus, Cardinal Cajetan, a sixteenth
century prince of the Church, can be considered the founder of expectations
theory in economics.
Furthermore, Cajetan distinguished between the two kinds of 'value of
money': its purchasing power in terms of goods, so that gold or silver are
'equated' with goods being bought and sold; and the value of one coin or
currency in terms of another on the foreign exchange market. Here, each kind
of coin tends to move to that region where its value is highest, and away from
wherever its value is lowest.
On the vexed usury question, though Cajetan was not as radical as his
German contemporary Summenhart in virtually eradicating the usury prohi-
bition, he did join Summenhart on the doctrine of implicit intention, and was
even more radical in the one area where Summenhart had hung back: lucrum
cessans. Implicit intention meant that if someone really believed his contract
not to be a loan, then it was not usurious, even though it might be a loan in
practice. This of course paved the way for the practical elimination of the ban
on usury. In addition, Cajetan also joined his fellow liberals in endorsing the
guaranteed investment contract.
But Cardinal Cajetan's great breakthrough on the usury front was his
vindication of lucrum cessans. Wielding the mighty authority of being the
greatest Thomist since Aquinas himself, Cajetan offered a point-by-point
critique of his master's rejection of this exception to the usury ban. He then
vindicates, not indeed all of lucrum cessans, but any loan to businessmen.
Thus a lender may charge interest on any loan as payment for profit foregone
on other investments, provided that loan be to a businessman. This untenable
split between loans to businessmen and to consumers was made for the first
time - as a means of justifying all business loans. The rationale was that
money retained its high profit-foregone value in the hands of business, but
not of consumer borrowers. Thus for the very first time in the Christian era,
Cardinal Cajetan justified the business of money lending, provided they were
loans to business. Before him, all writers, even the most liberal, even Conrad
Summenhart, had justified interest charges on lucrum cessans only for ad hoc
charitable loans; now the great Cajetan was justifying the business of money-
lending at interest.

4.3 The School of Salamanca: the first generation

If the newly burgeoning liberal Thomism began with Cardinal Cajetan in
Italy, the torch was soon passed to a set of sixteenth century theologians who
revived Thomism and scholasticism and kept them alive for over a century:
the School of Salamanca in Spain.
It is no more than fitting that Spain should be the centre of scholastic
learning in the sixteenth century. That century was pre-eminently the century
102 Economic thought before Adam Smith

of Spain. Spain, the leader in the explorations and conquests in the New
World; Spain, the nation that brought the treasures of gold and silver across
the Atlantic to Europe; Spain, along with Italy and Portugal, the nation in
Europe that remained resoundingly Catholic and proved immune to the spread
of Protestantism.
The acknowledged founder of the School of Salamanca was the great legal
theorist and pioneer in the discipline of international law, Francisco de Vitoria
(c. 1485-1546). A Basque raised in Burgos in northern Spain and born into a
prosperous family, Vitoria became a Dominican and went to study and then
teach in Paris. There, in one of the ironies of the history of thought, he
became a disciple of a Fleming who had been a pupil of one of the last of the
Ockhamites, John Major. This man, Pierre Crockaert (c.1450-1514), had
become a student and then teacher of theology late in life. Turning away from
his teacher Major, Crockaert abandoned nominalism and moved to Thomism,
entering the Dominican Order and coming to teach at the Dominican College
of Saint-Jacques in Paris. After spending over 17 years imbibing and then
teaching Thomism in Paris, Vitoria returned to Spain to lecture in theology at
Valladolid, finally coming to Salamanca - then the queen of Spanish univer-
sities - as prime professor of theology in 1526.
A brilliant and highly influential teacher and lecturer, Vitoria set the frame-
work for the Salamanca School for the rest of the century. Even though he
did not publish any writings, his lectures have come down to us as tran-
scribed by his students - much as in the case of Aristotle. Much of the glory
of the University of Salamanca was the result of reforms instituted by Vitoria
himself. Consequently, the university soon had no less than 70 professorial
chairs filled by the best scholars of the day, providing instruction not only in
the traditional medieval curriculum, but also in such new-fangled disciplines
as navigational science and the Chaldean language.
Vitoria's lectures were largely commentaries on Aquinas's moral theory. In
the course of the lectures, Vitoria founded the great Spanish scholastic tradi-
tion of denouncing the conquest and particularly the enslavement by the
Spanish of the Indians in the New World. In an age when thinkers in France
and Italy were preaching secular absolutism and the power of the state,
Vitoria and his followers revived the idea that natural law is morally superior
to the mere might of the state.
Vitoria did not expound much on economic topics, but he was interested in
commercial morality, and his views followed the mainstream scholastic tradi-
tion: the just price was the common market price, even though if there were a
legally fixed price it would also be considered just. In short, legal price edicts
are to be obeyed. However, for those goods without a common market - say
with only one or two sellers - Vitoria advanced beyond his forbears. Instead
of having cost of production determinate, Vitoria, while stating that cost
The late Spanish scholastics 103

could well be considered, returned to the old, nearly forgotten laissez-faire

Roman law tradition of free individual bargaining as providing the just price.
For in this situation, Vitoria maintained, the price had to be settled by the
exchanging parties themselves. Vitoria, however, then added a curious dis-
tinction between luxury and non-luxury goods. Luxuries could be sold for a
'fancy price', since the buyer pays the high price voluntarily and out of his
free will. Why this 'free will' should disappear with non-luxury items Vitoria
unfortunately does not explain.
Vitoria's most eminent student and fellow theologian at Salamanca was the
Dominican Domingo de Soto (1494-1560). Born in Segovia of comfortable
but not wealthy parents, de Soto studied at the University of Alcala near
Madrid and then went to Paris, where he studied under Vitoria, and later
became a professor. Returning to Spain, de Soto became professor of meta-
physics at Alcala, and then entered the Dominican Order, joining his mentor
as a theology professor at Salamanca in 1532. Though a shy personality, de
Soto was repeatedly involved in university administration, and was several
times prior of the college of Estaban in the University. De Soto's work in
physics is also considered outstanding.
In 1545 the Emperor Charles V honoured de Soto by naming him as his
representative at the great council of Trent, the mighty council of the Catho-
lie Counter-Reformation. Soon de Soto became confessor to the emperor, but
gave it up in a few years to return to his professorship at Salamanca. De
Soto's fame rested on his treatise De justitia et jure, published in 1553 and
based on lectures given originally at Salamanca in 1540-41. De Justitia et
jure was reprinted no less than 27 times before the end of the century, and
was read and quoted by jurists and moralists until the mid-eighteenth century.
Unfortunately, on economies de Soto was a reactionary thinker, and set back
some of the liberal gains of the previous scholastics. Thus, while de Soto
conceded that 'the price of goods is not determined by their nature but by the
measure in which they serve the needs of mankind', this utility analysis was
weakened by vague concessions to the 'labour, trouble, and risk' involved in a
sale. Worse than that, de Soto was not content to concede the propriety of
government fixing the price of goods and letting it go at that. Instead, he
declared flatly that a fixed price is always superior to the market price, and that
ideally all prices should be fixed by the state. And even lacking such control,
prices, for de Soto, should be set 'by the opinion of prudent and fair-minded
men' (whoever they might be!) who have nothing to do with any transactions.
They should not be determined by the free bargaining of the buyers and sellers
involved. Thus de Soto, more than any other scholastic thinker, called for
statism rather than market determination of price.
On foreign exchange, de Soto's influence was confusing, cutting both for
and against that market. In its favour, he contributed perhaps the first cogent
104 Economic thought before Adam Smith

explanation of the movements of currencies and exchange rates on the for-

eign exchange market - what would later be called the 'purchasing-power
parity theory' of exchange rates.
The economy of the sixteenth century was marked by an inflation which
first hit Spain, in response to gold and silver discoveries in the New World
and the consequent importation of specie into Spain. Inflation first struck in
Spain, and then spread to the rest of Europe, as the Spaniards spent the
increased supply of money. The result was the first large-scale secular infla-
tion in history, price in Europe doubling over the first half of the sixteenth
De Soto was concerned to explain the curious fact that more abundant
specie in Spain caused it to have an unfavourable balance of payment, with
money flowing out of Spain and into the rest of Europe. As he put it:

the more plentiful money is in Medina the more unfavourable are the terms of
exchange, and the higher the price that must be paid by whoever wishes to send
money from Spain to Flanders, since the demand for money is smaller in Spain
than in Flanders. And the scarcer money is in Medina the less he need pay there,
because more people want money in Medina than are sending it to Flanders.

In short, more abundant money in one place causes money to flow out, and
lowers the exchange rate relation to other currencies. A more abundant money
supply means that money is 'less wanted' there - a primitive way of pointing
to the supply increasing along a given falling demand curve for money, so
that each unit or coin is less valued. Here is also a rudimentary purchasing-
power parity analysis of exchange rates.
But despite this subtle advance in analysing the workings of the market, de
Soto backslid on usury to such an extent that he advocated banning the
foreign exchange market as usurious. In fact, de Soto managed to influence
the court in 1552 to outlaw all internal currency exchange at anything other
than the legal par.
As can be seen, de Soto exercised a reactionary influence on the usury ban,
and managed to block any general acceptance of the revolutionary contribu-
tions of Summenhart and Cajetan on the usury issue. Attempting to turn back
the tide, de Soto went so far as to declare the standard guaranteed or insured
investment contract as sinful and usurious, on the old discredited medieval
ground that risk and ownership must never be separated. He tried to roll back
lucrum cessans, and in general was more rigorously anti-usury than almost
any of the medieval scholastics, insisting anachronistically that money is
sterile and bears no fruit, and therefore cannot lawfully command interest.
Ironically, however, while anxious to reverse the tide of liberalization of
usury, de Soto himself contributed to the long-run demise of the usury ban.
We remember that Pope Urban III, in his decretal Consuluit in the late twelfth
The late Spanish scholastics 105

century, had suddenly pulled a forgotten quotation from Luke (6:35) out of
the hat: 'lend freely, hoping nothing thereby', and used this vague counsel to
charity as a stick with which to prohibit all interest on loans. More remark-
ably, all later scholastics had followed this dubious divine ban on interest-
taking; even the radical Summenhart had conceded the divine injunction
against interest and simply narrowed it down to virtually nothing. It para-
doxically now fell to the conservative de Soto to cast the first stone. The
Luke statement, he declared contemptuously, has no relevance to lending at
interest, and Christ most definitely did not declare usury to be sinful. There-
fore, he concluded, if usury is not against the natural law, it is perfectly licit.
Theologically, there is no problem with usury.

4.4 The School of Salamanca: Azpilcueta and Medina

Fortunately, de Soto's reactionary and statist influence was at least partially
offset by another of Vitoria's distinguished students, Martin de Azpilcueta
Navarrus (1493-1586). Renowned for his saintly life and vast learning, the
gaunt, hook-nosed Dominican Azpi1cueta was regarded as the most eminent
canon lawyer of his day. After teaching canon law in Cahors and Toulouse in
France, Azpilcueta returned to take up a chair at Salamanca, where his
overflowing lectures featured a new method of teaching civil law by combin-
ing it with canon law. In 1538, Azpilcueta was sent by Emperor Charles V to
be rector of the new University of Coimbra, in western Portugal. There he
developed the principles of international law originally set forth by his mas-
ter, Vitoria. Azpilcueta spent his last years in Rome, a trusted adviser to three
popes, dying at the advanced age of 93.
Azpilcueta used his great influence to advance economic liberalism farther
than it had ever gone before, among the scholastics or anywhere else. In
sharp contrast to de Soto's admiration for comprehensive price control,
Azpi1cueta was the first economic thinker to state clearly and boldly that
government price-fixing was imprudent and unwise. When goods are abun-
dant, he sensibly pointed out, there is no need for maximum price control,
and when goods are scarce, controls would do the community more harm
than good.
But Azpilcueta's outstanding contribution to economics was his theory of
money, published in his Comentario resolutoio de usuras (1556) as an appen-
dix to a manual on moral theology. The manual and the commentaries in the
appendix were translated into Latin and Italian, and proved to be influential
for Catholic writers for many years. Azpilcueta built on the analysis of
Cardinal Cajetan to present the first clear and unambiguous presentation of
the 'quantity theory of money'. Or rather, he breaks firmly with the tradition
that money can in any sense be a fixed measure of value of other goods. In
contrast to older emphasis on foreign exchange, or money in terms of other
106 Economic thought before Adam Smith

monies, Azpilcueta clearly identified the value of money as its purchasing

power in terms of goods. Once Azpilcueta grasped these two points firmly,
then the 'quantity theory' followed directly. For then, like other goods, the
value of money varied inversely with its supply, or quantity available. As
Azpilcueta put it: 'all merchandise becomes dearer when it is in great de-
mand and short supply, and that money, in so far as it may be sold, bartered,
or exchanged by some other form of contract, is merchandise, and therefore
also becomes dearer when it is in great demand and short supply'.
It should be noted that this splendid and concise analysis of the determi-
nants of the purchasing power of money does not make the mistake of later
'quantity theorists' in stressing the quantity or supply of money while ignor-
ing the demand. On the contrary, demand and supply analysis was applied
correctly to the monetary sphere.
Gold and silver flooded into Spain and then the rest of Europe in the
sixteenth century, driving up prices first in Spain and then in the other
countries. Prices doubled by the middle of the century. Historians of eco-
nomic thought have held the first quantity theorist, the first thinker to at-
tribute the price rise to the influx of specie, to be the French absolutist
political theorist Jean Bodin. But Bodin's famous Reply to the Paradoxes of
M. Malestroit (1568) was anticipated by 12 years by Azpilcueta's work, and
since the erudite Bodin probably had read the Spanish Dominican, his an-
nounced claim to originality seems in unusually bad taste. And since Spain
was the first recipient of the flow of specie from the New World, it is
certainly not surprising that a Spaniard should be the first person to decipher
the new phenomenon. Thus, Azpilcueta wrote:

... other things being equal, in countries where there is a great scarcity of money
all other saleable goods, and even the hands and labor of men, are given for less
money than where it is abundant. Thus we see by experience that in France, where
money is scarcer than in Spain, bread, wine, cloth and labor are worth much less.
And even in Spain, in times when money was scarcer, saleable goods and labor
were given for very much less than after the discovery of the Indies, which
flooded the country with gold and silver. The reason for this is that money is
worth more where and when it is scarce than where and when it is abundant.

Martin de Azpilcueta, in this case influenced by his colleague de Soto, also

developed the latter's purchasing-power parity theory of exchange rates, at
the same time that he worked out the 'quantity theory', supply and demand
analysis of the value of money. The two of course, go hand in hand.
One of Azpilcueta's most important contributions was to revive the vital
concept of time-preference, perhaps under the influence of the works of its
discoverer, San Bernardino of Siena. Azpilcueta pointed out, more clearly
than Bernardino, that a present good, such as money, will naturally be worth
The late Spanish scholastics 107

more on the market than future goods, that is, goods that are now claims to
money in the future. As Azpilcueta put it: 'a claim on something is worth less
than the thing itself, and ... it is plain that that which is not usable for a year
is less valuable than something of the same quality which is usable at once'.
But if a future good is naturally less valuable than a present good on the
market, then this insight should automatically justify 'usury' as the charg-
ing of interest not on 'time' but on the exchange of present goods (money)
for a future claim on that money (an IOU). And yet, this seemingly simple
deduction (simple to us who come after) was not made by Azpilcueta
On the foreign exchange market, Azpi1cueta struck a blow for economic
liberalism by reviving the Cajetan line, and repudiating the statist fulminations
of his colleague de Soto, who had called for the prohibition of all foreign
exchange transactions as usurious. In addition to repeating Cajetanian argu-
ments, the Spanish Dominican and trusted advisor to three popes injected
practical considerations. Azpi1cueta pointed out that 'an infinite number of
decent Christian' merchants, aristocrats, widows, and even churchmen com-
monly invest in foreign exchange. Azpilcueta insisted that he refuses to
'damn the whole world' by imposing overly rigorous standards. Furthermore,
he warned, to abolish foreign exchange markets 'would be to plunge the
realm into poverty' , a step he was clearly not willing to take.
On most other aspects of the usury question, however, Azpilcueta Navarrus
was surprisingly conservative, and a big step backward from the advanced
freemarket position of Conrad Summenhart. On the census, or annuity con-
tract, Azpilcueta Navarrus was far harsher than de Soto, who was liberal on
this particular aspect of 'usury'. Instead, Azpilcueta was the main influence
on Pope Pius V's issue in 1569 of the bull Cum onus, in which all census is
declared illegal except on a 'fruitful, immobile good' , for which status money,
of course, cannot qualify. The pope had been goaded into issuing the bull by
Cardinal San Carlo Borromeo, who as newly appointed archbishop of Milan,
professed to find usury everywhere in that sinful city. Borromeo was one of
the leaders of the Catholic Counter-Reformation, and his prodding led to
Cum onus.
But it was too late; the census contract was too ingrained in European
practice, and too rnany theologians had adopted the liberal approach. The
majority of Catholic theologians rejected this new attempt and simply stated
that the pope's arguments were matters of positive rather than natural law,
and therefore that the papal bull had to be accepted by the government or be
the common practice of a particular country for it to carry the force of law in
that country. Interestingly enough, not a single country in Europe accepted
Cum onus: not Spain, not France, nor Germany, not southern Italy, nor even
Rome itself!
108 Economic thought before Adam Smith

The contempt with which Cum onus was received throughout Europe is
strikingly revealed in its treatment by the recently founded Jesuit Order. The
Society of Jesus was founded in 1537 by an invalided Spanish ex-army
officer, Ignatius Loyola, born in the Basque country. The rapidly expanding
society was installed on rigorous discipline along consciously military lines
(Loyola's original title for the society was 'the Company of Jesus'). Under
vow of absolute obedience to the pope and to the general of the order, the
Jesuits became the 'shock troops' of the Catholic Counter-Reformation. De-
spite their vow to the pope, the Jesuit general congregation of 1573, only four
years after Cum onus, validated the mutually redeemable census contract.
And in 1581, the Jesuit congregation went the whole way and validated every
type of census contract. When some German Jesuits became restive at this
liberality, the general of the Jesuit Order, Claude Aquaviva, in 1589 ordered
that the validity of the census contract be upheld by German Jesuits with no
further dissent. So much for the pope's census prohibition.
In the following century, the census loophole was widely used to camou-
flage interest on loan contracts, particularly in Germany. As Noonan points
out, it is certainly significant that the German word for interest on a loan is
zins, derived from the Latin census.
The Summenhart-Cajetan doctrine of implicit intention - that if someone
did not intend a contract to be a loan, then it was licit - was carried even
further by the remarkable Jesuit congregation of 1581. The congregation
justified virtually every contract. As Noonan concludes: 'In practice, it meant
that only loans to aged or infirm persons without property or loans bearing a
rate of interest beyond that obtainable in "a guaranteed investment contract
or census" were to be regarded as true usurious loans'.
If Azpilcueta Navarrus was conservative on most aspects of usury, he did
however became the first writer to justify interest charged on lucrum cessans
(investment profit foregone) for all loans, not just ad hoc loans made out of
charity (previous writers) or even only for loans to business (Cajetan). Now
any profit foregone could be charged as interest, even by professional money-
lenders. The only restriction remaining - a feeble one in practice - is that the
lender would actually have used his money to make the foregone investment.
Of this first generation of late Spanish scholastics - approximately those
who were born in the 1480s and 1490s - the final noteworthy writer was Juan
de Medina (1490-1546). Medina, a Franciscan, did not, however, teach the-
ology at Salamanca but at the Collegium at Alcala. Medina's distinction
comes from being the first writer in history to advance the view clearly that
charging interest on a loan is legitimate if in compensation to the lender for
risk of non-payment. Medina's reasoning was impeccable: exposing one's
property 'to the risk of being lost, is sellable, and purchasable at a price, nor
is it among those things which are to be done gratuitously'. Furthermore,
The late Spanish scholastics 109

Medina pointed out, theologians now admit that someone who guarantees a
debtor's loan can licitly charge for that service; but in that case, if the
borrower cannot find a guarantor, why cannot the lender charge the borrower
for assuming the risk of non-repayment? Isn't his charge similar to the charge
of the guarantor?
The argument was sound, but the shock to the scholastics was severe, no
less so because Medina weakened his risk justification by banning interest on
riskless loans and restricting the charge to cases where the borrower could
not find a guarantor. Domingo de Soto, in horror, correctly pointed out that to
admit a charge for risk of non-payment would destroy the entire usury prohi-
bition, since a charge could be made for a loan above the principal. The
usually more liberal Azpilcueta gave Medina even shorter shrift, objecting
correctly if insufficiently, that every theologian, canon lawyer, and natural
lawyer disagreed with Medina's innovation. And that was supposed to be the
end of the matter.
Medina's discussion of value theory, however, was not nearly so cogent. In
discussing the just market price, Medina throws in higgledy-piggledy a host
of factors: costs, labour, industry, and risk for suppliers; need or utility for
buyers; and scarcity or abundance of the good. Clearly, there was much less
of a coherent analysis of supply than in the hands of San Bernardino of Siena.
On the other hand, whereas the scholastic tradition held that the legal price
would have to take precedence over the market price, Medina cited two cases
where the market price should be followed: where the market price is lower,
and where the authorities were too slow in adjusting the legal edict to a
higher market price.

4.5 The School of Salamanca: the middle years

The institution and the structure of thought of the School of Salamanca was
established, then, in the first half of the sixteenth century by three great
Dominicans: Francisco de Vitoria, and his followers, Domingo de Soto and
Martin de Azpilcueta Navarrus. The latter two theologians were the founders
of the economic aspect of the systematic theology and philosophy of the
Salamanca School.
The middle generation of Salamancans were those men born in the first
decades of the sixteenth century, and writing near and after mid-century. The
oldest of these second-generation members was the eminent Diego de
Covarrubias y Leiva (1512-77) whose handsome and distinguished features
grace a stunning portrait by the great Spanish painter EI Greco, now hanging
in the Greco Museum in Toledo. Acknowledged as the greatest jurist since
Vitoria, Covarrubias was the most prominent student of Azpilcueta. After ten
years as professor of canon law at the University of Salamanca, Covarrubias
was made auditor of the chancellor of Castile by the emperor, after which he
110 Economic thought before Adam Smith

became bishop of Ciudad Rodrigo and bishop of Segovia. In 1572, Covarrubias

became president of the council of Castile. As did so many other scholastics
of the time, Covarrubias' writings ranged over theology, history, numismat-
ics, and other disciplines of human action as well as the law.
The theory of value had lain in the doldrums ever since San Bernardino
and Johannes Nider in the fifteenth century, and now, a century later, it was
revived by Covarrubias. In his Variarum (1554), Covarrubias gets value
theory back on the right track: the value of goods on the market is determined
by utility, and by the scarcity of the product. The value of goods, then,
depends not on matters intrinsic to the good or to its production, but on the
estimations of consumers. Thus Covarrubias: 'The value of an article does
not depend on its essential nature but on the estimation of men, even if that
estimation is foolish. Thus, in the Indies wheat is dearer than in Spain
because men esteem it more highly, though the nature of the wheat is the
same in both places'. In considering the just price of a good, Covarrubias
added, we must consider not its original cost, nor its cost in labour, but only
its common market value. Prices fall when buyers are few and goods are
abundant, and vice versa.
It should be noted, as will be mentioned further below, that Covarrubias,
considered one of the greatest experts on Roman law in his day, exerted
considerable influence on the great seventeenth century Dutch Protestant
jurist Hugo Grotius. Covarrubias' economic writings were particularly influ-
ential in Italy, where they continued to be cited down through the work of the
eminent Abbe Ferdinando Galiani, in 1750.
Another important contribution to utility theory was made by a lesser
contemporary of Covarrubias, Luis Saravia de la Calle Verofiese. Saravia was
one of several influential writers of handbooks on moral theology, which took
the teachings of the great theologians and boiled them down for confessors
and their penitents. In his Instruccion de mercades (Medina del Campo,
1554), Saravia lashed out at all manner of cost-of-production theories of
value, insisting that utility and market demand alone, interacting with scar-
city of supply, determine the common market price and hence the just price.
Saravia's attack on cost of production notions was trenchant and hard-hitting:

the just price arises from the abundance or scarcity of goods, merchants, and
money, as has been said, and not from costs, labor and risk. If we had to consider
labor and risk in order to assess the just price, no merchant would ever suffer loss,
nor would abundance or scarcity of goods and money enter into the question.

Saravia's work, in addition to being cited many times by later Spanish

writers, was also influential in Italy, where it was translated in 1561. The
Italian A.M. Venusti became a disciple of Saravia and published a similar
The late Spanish scholastics 111

The next important Salamancan economist was the colourful Dominican

Tomas de Mercado (d. 1585). Mercado's was the next important handbook on
moral theology after Saravia: Tratos y contratos de mercaderes (Salamanca,
1569). Born in Seville, Mercado was raised in Mexico, where he entered the
Dominican Order, from which he returned to Salamanca and Seville. Mercado's
handbook drew on his extensive knowledge of business practice picked up on
his travels, and it was written in a concise and even sardonic style.
Mercado was a perceptive, if sometimes confused, monetary theorist.
Applying utility analysis to money, Mercado went right up to the edge of
marginal analysis by pointing out that the purchasing power is the highest
where money is most scarce and therefore highly 'esteemed.' In short,
Mercado dimly realized that the demand for money is a schedule, falling as
the supply of money increases, and that the value, or purchasing power, of
money is determined by the interaction of its supply and demand. Thus

... money is esteemed much less in the Indies [where it is mined] than in
Spain... After the Indies, the place where money is least esteemed is Seville, the
city that gathers unto herself all the good things from the New World, and, after
Seville, the other parts of Spain. Money is highly esteemed in Flanders, Rome,
Germany and England. This estimation and appreciation are brought about, in the
first place, by the abundance or scarcity of these metals; since they are found and
mined in America, they are there held in little esteem.

It is not surprising that Mercado, in contrast to de Soto, opposed the

outlawing of internal currency exchange in Spain. On the other hand, he was
confused enough, in contrast to his keen analysis of the value of money, to
favour the outlawing of the export of metals. But wouldn't the 'esteem' for
the remaining metals be higher, and wouldn't this check and offset the out-
ward flow of metals?
During the 1570s, a satellite group of theologian-economists arose at
Valencia, grounding themselves on their studies at Salamanca. The most
important was Francisco Garcia who, in his Tratado utilismo (Valencia, 1583)
expanded and developed the subjective utility theory of value. In a notable
advance in discussions of utility, Garcia pointed out that the utility or value
of a thing may vary because: one good may have many uses and serve more
purposes than another, may serve a more important service than another, and/
or may perform a given service more efficiently than another.
In addition to utility determining value and price, Garcia noted also its
relative abundance or scarcity. And here, Garcia too, came just to the edge -
although not over - of discovering the final, missing marginal element in
utility theory:
112 Economic thought before Adam Smith

For example, we have said that bread is more valuable than meat because it is
more necessary for the preservation of human life. But there may come a time
when bread is so abundant and meat so scarce that bread is cheaper than meat.

Garcia went on to detail other determinants of value including the number

of buyers and sellers; and the eagerness to buy and sell (i.e. intensity of
demand in buying or holding on to a product): 'whether vendors are eager to
sell their goods, and buyers much sought after and importuned'. He then
went on to integrate monetary into value theory, another determinant of
prices being 'whether money is scarce or plentiful' .
In monetary theory, Garcia continued and developed the Azpilcueta-
Covarrubias-Mercado line. In the Indies, where gold and silver are plentiful,
specie is 'not as highly esteemed' as in Spain, where there is less gold and
silver. He similarly pointed out in his comprehensive discussion, that when
money is abundant in any given country, its esteem or value will be low,
whereas when money is scarce it is far more highly valued. In other words, as
Garcia pointed out, these differences in degrees of esteem, or demand, may
occur either over place or over time.
This comparative analysis of changes in the value of money over time or
place was an important advance in monetary theory. But not only that; Garcia,
for the first time, rested his 'macro' analysis on a 'micro' insight: that a very
rich man, a man with an abundant personal supply of money, will tend to
evaluate each unit of currency less than when he was poor, or than another
poor man. Here Garcia actually grasped, though sketchily, the concept of the
diminishing marginal utility of money. Marginalism, in this area at least, was
actually reached rather than simply approached.
Finally, Garcia arrived at the most integrated utility theory of the value of
money to date: the value of money on the market is determined by the supply
of money available, the intensity of the demand for money, and the safety of
the money itself (called by later economists the 'quality' of the money in the
minds of people in the market).

4.6 The late Salamancans

The School of Salamanca, begun by Francisco Vitoria in the 1520s, reached
its final flowering at the end of the sixteenth century. One of the leading
lights of that era was the Dominican Domingo de Banez de Mondragon
(1527-1604), professor of theology at the University of Salamanca, and
friend and confessor of the famous mystic St Theresa of Avila. De Banez was
renowned for the great controversy with his eminent Jesuit colleague LUIS de
Molina, on the crucial question of determinism versus free will. De Banez
took the Dominican position, which leaned toward the 'Calvinist' - deter-
minist stand that salvation is solely a product of God's grace, ordered from
The late Spanish scholastics 113

the beginning of time for God's own inscrutable reasons. Molina championed
the Jesuit view, which upheld the freedom of will of each individual in
achieving salvation. In the latter view, the free will choice of the individual is
necessary to effectuate God's grace which is there for him to accept. A
historian sums up Molina's view of free will with these inspiring words:
'Liberty is ours, so indisputably ours, that, with the help of God's gifts, it lies
in our power to avoid all mortal sin and to attain eternal life. Freedom
belongs to the sons of God' .1
In a systematic discussion of money, its value, and foreign exchange, De
Banez (in De Justitia et Jure, 1594), provided a cogent discussion of the
purchasing-power parity theory of exchanges, a theory which had formed the
scholastic main line since De Soto and Azpilcueta.
The last notable Salamancan economic thinker was the great theologian
Luis de Molina (1535-1601). The ascendancy of Molina in Spanish scholas-
tic thought was a fitting embodiment of the passing of the theological and the
natural law torch from the Dominicans to the aggressive new Jesuit Order.
By the late sixteenth century, the influence of the Order permeated all of
Though a Salamancan through and through, Molina only briefly studied
and never actually taught at that university. Born in Cuenca of a noble family,
Molina went briefly to Salamanca, and then to the University of Alcala.
Entering the new Jesuit Order, Molina was sent to the University of Coimbra
in Portugal, since the Jesuit Order was not yet fully organized in Castile.
Molina was to remain 29 years as a student and teacher in Portugal. After
Coimbra, the habitually shabbily dressed Molina taught theology and civil
law for 20 years at the University of Evora. In retirement back in Cuenca, the
learned and worldly Molina published his massive six-volume magnum opus,
De Justitia et Jure. The first three volumes were published in 1593, 1597 and
1600, and the other volumes followed posthumously.
Luis de Molina was a solid economic liberal, and he provided a compre-
hensive analysis, in the Salamancan vein, of supply and demand and their
determination of price. The just price is, of course, the common market price.
One important addition that Molina made to his forerunners was to point out
that goods supplied at retail in small quantities will sell at a higher unit price
than at bulk sales before the goods get to the retailer. This argument also
served as an added justification for the existence of the much-abused retailer.
But Molina in economics was primarily a monetary theorist. Here, he
endorsed and carried forward the purchasing-power parity theory of ex-
change rates and the Salamancan analysis of the value of money, even explic-
itly endorsing the work of his theological opponent, Domingo de Banez.
Molina's analysis of the determination of the value of money and its changes
was the most subtle to date, using explicit 'other things being equal' (ceteris
114 Economic thought before Adam Smith

paribus) clauses, and developing the analysis of the determinants of the

demand for money.
Thus, on the causes of changes in price and particularly of the Spanish
inflation of the sixteenth century, Molina wrote:

Just as an abundance of goods causes prices to fall (the quantity of money and
number of merchants being equal), so does an abundance of money cause them to
rise (the quantity of goods and number of merchants being equal). The reason is
that the money by itself becomes less valuable for the purpose of buying and
comparing goods. Thus we see that in Spain the purchasing-power of money is far
lower, on account of its abundance, than it was eighty years ago. A thing that
could be bought for two ducats at that time is nowadays worth five, six, or even
more. Wages have risen in the same proportion, and so have dowries, the price of
estates, the income from benefices, and other things.

After going through the standard Spanish scholastic analysis of how abun-
dance of money causes a fall in its value, first and foremost in the New
World, then in Seville and Spain, Molina noted the importance of the demand
for money: 'Wherever the demand for money is greatest, whether for buying
or carrying goods, conducting other business, waging war, holding the royal
court, or for any other reason, there will its value be highest' .
It is not surprising that the economic liberal Molina strongly attacked any
government fixing of exchange rates. The value of one currency in terms of
another is always changing in response to supply and demand forces, and
therefore it is meet and just that exchange rates fluctuate accordingly. Molina
then pointed out that fixed exchange rates would create a shortage of money.
He did not, however, go into detail.
Molina also inveighed against most governmental price controls, particu-
larly the imposing of ceiling prices on farm commodities.
On usury, Molina, while still not going as far as the radical acceptance of
interest by Conrad Summenhart a century earlier, took important steps in
widening the accepted bounds of the charging of interest. He put his immense
prestige behind Juan de Medina's entirely new defence of charging payment
for the lender's assumption of risk. Indeed, he widened Medina's permitted
bounds of using the risk defence. Not only that: Molina greatly widened the
scope of lucrum cessans, and solidly entrenched that permissible title to
interest as a broad principle permeating the market economy. One of the few
remaining restrictions is intention: the loan is not permissible if the lender
had not intended to invest the loaned funds.
Lufs de Molina also played an important role in reviving active natural
rights and private-property rights theory, which had fallen· into a decline
since the early part of the sixteenth century. Humanists and Protestants, as we
shall see below, had little use for the concept of natural rights, while Vitoria
The late Spanish scholastics 115

and the Dominicans slipped into a determinist, passive or attenuated view of

rights. Only the University of Louvain, in Belgium, began to serve as a centre
of free will thought, along with the idea of absolute natural rights of person
and property. The Louvain theologian Johannes Driedo stressed freedom of
the will (in De Concordia, 1537) and active natural rights (De Libertate
Christiana, 1548).
By the 1580s, the new Jesuit Order began to launch its assault on the
Dominicans, whom they suspected of crypto-Calvinism - a suspicion not
allayed by the fact that many Dominicans had converted to Calvinism during
the sixteenth century. In the course of his championing free will against de
Banez and the Dominicans, Molina also returned to the active natural rights
view which had for long only continued to be upheld at Louvain. Attacking
the passive claim theory of rights, Molina put the distinction very clearly:

When we say ... that someone has a ius to something, we do not mean that any-
thing is owed to him, but that he has a faculty to it, whose contravention would
cause him injury. In this way we say that someone has a ius to use his own things,
such as consuming his own food - that is, if he is impeded, injury and injustice
will be done to him. In the same way that a pauper has the ius to beg alms, a
merchant has the ius to sell his wares, etc.

Note that the astute Molina did not say that the pauper had the right to be
given alms. For Molina, as for all active property rights theorists, a 'right'
was not a claim to someone else's property, but was, on the contrary a clear-
cut right to use one's own property without someone else's claim being
levied upon it.
It was Molina's achievement to link this active natural rights theory with
his libertarian commitment to freedom and the free will of each individual,
both theologically and philosophically. Professor Tuck sums up this linkage
with these stirring words: Molina's 'was a theory which involved a picture of
man as a free and independent being, making his own decisions and being
held to them, on matters to do with both his physical and his spiritual
The School of Salamanca had begun with the distinguished jurist, de
Vitoria, and so it is fitting that the last major Salamancan should be another
renowned jurist, and perhaps the most illustrious thinker in the history of the
Jesuit Order - Francisco Suarez (1548-1617). The last of the great Thomists,
this celebrated theologian was born in Granada into an ancient noble family.
Entering the University of Salamanca, Suarez applied to the Jesuit Order in
1564 and was the only applicant among 50 candidates that year to be rejected
- as mentally and physically below standard! Admitted finally with an infe-
rior rank, Suarez could hardly keep up with his studies and was known -
ironically like St Thomas Aquinas before him - as the 'dumb ox'. Soon,
116 Economic thought before Adam Smith

however, the humble and modest Suarez became the star pupil, and it was not
long before his theology professors were asking him for advice.
In 1571, Suarez became professor of philosophy at Segovia, then taught
theology at Avila and Valladolid. Suarez soon attained to the famous chair of
theology at the Jesuit College in Rome. From there, due to ill health, Suarez
returned to Spain, teaching at Alcala, where he was virtually ignored, and
then to Salamanca, where, as in Alcala, he lost academic disputes to inferior
rivals. In 1593, the emperor insisted on Suarez's accepting the main chair of
theology at Coimbra, where, in 1612, he published his masterwork, De Legibus
ac de Deo Legislatore.
Francisco Suarez never achieved his due in life. His quiet, plodding lecture
style made him lose academic influence to flashier though inferior rivals.
Perhaps the crowning indignity heaped upon him is that, in 1597, at the age
of 49, this brilliant and learned jurist and theologian, perhaps the greatest
mind in the history of the Jesuit Order, was forced to leave the University of
Coimbra for a year to obtain a doctorate in theology at Evora. Ph.D-itis in the
sixteenth century!3
While Suarez contributed little on strictly economic matters, he added
greatly to the weight of the Louvain-Molina rediscovery of the active natural
rights view of private property, and he reinforced the great impact of Molinist
freewill theory. In addition, Suarez had a much more restricted view of the
just power of the king than did Molina or his other predecessors. To Suarez
the power of the ruler is in no sense a divinely created institution since
political power by natural and divine law devolves solely on the people as a
whole. The community as a whole confers political power on the king or
other set of rulers; and while Suarez believed that natural law requires some
form of state, the sovereign power of any particular state 'must necessarily be
bestowed upon him by the consent of the community'.
Suarez's theory, of course, held radical implications indeed. For if the
people or the community confer state power on a king or a set of rulers, may
they not then take it away? Here, Suarez fumbled; he was certainly not
prepared to go all the way to a truly radical or revolutionary position. No, he
declared inconsistently, once the sovereign power is conferred by the people
on a king, it is his forever; the people cannot take it back. But then Suarez
shifts once more, adopting the traditional Thomist doctrine of the right of the
people to resist tyrants. If a king lapses into tyranny, then the people may rise
up and resist, and even assassinate the king. But Suarez, like his forbears,
hedged this powerful right of 'tyrannicide' with a thicket of restrictions; in
particular, tyranny must be manifest, and a private person cannot rise up
himself and kill the king. The act must in some way be mandated by the
people or community acting as a whole.
The late Spanish scholastics 117

4.7 The learned extremist: Juan de Mariana

One of the last Spanish scholastics was a Jesuit but not a Salamancan. He
was the 'extremist' contemporary of Molina and Suarez, Juan de Mariana
(1536-1624). Mariana was born near Toledo, of poor and humble parents. He
entered the great University of Alcahi in 1553, shone as a student, and a year
later was received into the new Society of Jesus. After completing his studies
at Alcala, Mariana went to the Jesuit College at Rome in 1561 to teach
philosophy and theology, and after four years moved to Sicily to set up the
theology programme at the Jesuit college there. In 1569, Mariana moved to
teach theology at the great University of Paris, at the remarkably young age
of 33. After four years, ill health forced him to retire to live in Toledo; ill
health, however, often does not necessarily mean a short life, and Mariana
lived to the then phenomenally ripe old age of 88.
Fortunately, Mariana's 'retirement' was an active one, and his great learn-
ing and erudition drew numerous persons, from private citizens to state and
ecclesiastical authorities, to ask for his advice and guidance. He was able to
published two great and influential books. One was a history of Spain, writ-
ten first in Latin and then in Spanish, which went into many volumes and
many editions in both languages. The Latin version was eventually published
in 11 volumes, and the Spanish in 30. The Spanish edition has long been
considered one of the classics of Spanish style, and it went into many edi-
tions until the mid-nineteenth century.
The other notable work of Mariana, De Rege (On Kingship), was pub-
lished in 1599, written at the suggestion of King Philip II of Spain and
dedicated to his successor Philip III. But monarchy did not fare well at the
hands of the hard-hitting Mariana. A fervent opponent of the rising tide of
absolutism in Europe, and of the doctrine of such as King James I of England
that kings rule absolutely by divine right, Mariana converted the scholastic
doctrine of tyranny from an abstract concept into a weapon with which to
smite real monarchs of the past. He denounced such ancient rulers as Cyrus
the Great, Alexander the Great, and Julius Caesar as tyrants, who acquired
their power by injustice and robbery. Previous scholastics, including Suarez,
believed that the people could ratify such unjust usurpation by their consent
after the fact, and thereby make their rule legitimate. But Mariana was not so
quick to concede the consent of the people. In contrast to other scholastics,
who placed the 'ownership' of power in the king, he stressed that the people
have a right to reclaim their political power whenever the king should abuse
it. Indeed Mariana held that, in transferring their original political power
from a state of nature to the king, the people necessarily reserved important
rights to themselves; in addition to the right to reclaim sovereignty, they
retained such vital powers as taxation, the right to veto laws, and the right to
determine succession if the king has no heir. It should already be clear that it
118 Economic thought before Adam Smith

was Mariana, rather than Suarez, who might be called the forebear of John
Locke's theory of popular consent and the continuing superiority of the
people to the government. Furthermore, Mariana also anticipated Locke in
holding that men leave the state of nature to form governments in order to
preserve their rights of private property. Mariana also went far beyond Suarez
in postulating a state of nature, a society, previous .to the institution of
But the most fascinating feature of the 'extremism' of Mariana's political
theory was his creative innovation in the scholastic theory of tyrannicide.
That a tyrant might be justly killed by the people had long been standard
doctrine; but Mariana broadened it greatly in two significant ways. First, he
expanded the definition of tyranny: a tyrant was any ruler who violated the
laws of religion, who imposed taxes without the people's consent, or who
prevented a meeting of a democratic parliament. All the other scholastics, in
contrast, had located the sole power to tax in the ruler. Even more spectacu-
larly, to Mariana any individual citizen can justly assassinate a tyrant and
may do so by any means necessary. Assassination did not require some sort
of collective decision by the entire people. To be sure, Mariana did not think
that an individual should engage in assassination lightly. First, he should try
to assemble the people to make this crucial decision. But if that is impossible,
he should at least consult some 'erudite and grave men', unless the cry of the
people against the tyrant is so starkly manifest that consultation becomes
Furthermore, Mariana added - in phrases anticipating Locke's and the
Declaration of Independence's justification of the right of rebellion - that we
need not worry about the public order being greatly disrupted by too many
people taking up the practice of tyrannicide. For this is a dangerous enter-
prise, Mariana sensibly pointed out, and very few are ever ready to risk their
lives in that way. On the contrary, most tyrants have not died a violent death,
and tyrannicides have almost always been greeted by the populace as heroes.
In contrast to the common objections to tyrannicide, he concluded, it would
be salutary for rulers to fear the people, and to realize that a lapse into
tyranny might cause the people to call them to account for their crimes.
Mariana has given us an eloquent description of the typical tyrant at his
deadly work:

He seizes the property of individuals and squanders it, impelled as he is by the

unkingly vices of lust, avarice, cruelty, and fraud .... Tyrants, indeed, try to injure
and ruin everybody, but they direct their attack especially against rich and upright
men throughout the realm. They consider the good more suspect than the evil; and
the virtue which they themselves lack is most formidable to them ... They expel
the better men from the commonwealth on the principle that whatever is exalted
in the kingdom should be laid low ... They exhaust all the rest so that they can not
The late Spanish scholastics 119

unite by demanding new tributes from them daily, by stirring up quarrels among
the citizens, and by joining war to war. They build huge works at the expense and
by the suffering of the citizens. Whence the pyramids of Egypt were born ... The
tyrant necessarily fears that those whom he terrorizes and holds as slaves will
attempt to overthrow him .... Thus he forbids the citizens to congregate together,
to meet in assemblies, and to discuss the commonwealth altogether, taking from
them by secret-police methods the opportunity of free speaking and freely listen-
ing so that they are not even allowed to complain freely ....

This 'erudite and grave man', Juan de Mariana, left no doubt what he
thought of the most recent famous tyrannicide: that of the French King Henry
III. In 1588, Henry III had been prepared to name as his successor Henry of
Navarre, a Calvinist who would be ruling over a fiercely Catholic nation.
Facing a rebellion by the Catholic nobles, headed by the duc de Guise, and
backed by the devoted Catholic citizens of Paris, Henry III called the duke
and his brother the cardinal to a peace parley into his camp, and then had the
two assassinated. The following year, on the point of conquering the city of
Paris, Henry III was assassinated in turn, by a young Dominican friar and
member of the Catholic League, Jacques Clement. To Mariana, in this way
'blood was expiated with blood' and the duc de Guise was 'avenged with
royal blood'. 'Thus perished Clement', concluded Mariana, 'an eternal orna-
ment of France'. The assassination had similarly been hailed by Pope Sixtus
V, and by the fiery Catholic preachers of Paris.
The French authorities were understandably edgy about Mariana's theories
and at his book De Rege. Finally, in 1610, Henry IV (formerly Henry of
Navarre, who had converted from Calvinism to the Catholic faith in order to
become king of France), was assassinated by the Catholic resister Ravaillac,
who despised the religious centrism and the state absolutism imposed by the
king. At that point, France erupted in an orgy of indignation against Mariana,
and the parlement of Paris had De Rege burned publicly by the hangman.
Before executing Ravaillac, the assassin was questioned closely as to whether
reading Mariana had driven him to murder, but he denied ever having heard
of him. While the king of Spain refused to heed French pleas to suppress this
subversive work, the general of the Jesuit Order issued a decree to his
society, forbidding them to teach that it is lawful to kill tyrants. This truckling,
however, did not prevent a successful smear campaign in France against the
Jesuit Order, as well as its loss of political and theological influence.
Juan de Mariana possessed one of the most fascinating personalities in the
history of political and economic thought. Honest, gutsy and fearless, Mariana
was in hot water almost all of his long life, even for his economic writings.
Turning his attention to monetary theory and practice, Mariana, in his brief
treatise De Monetae Mutatione (On the Alteration ofMoney, 1609) denounced
his sovereign, Philip III, for robbing the people and crippling commerce
120 Economic thought before Adam Smith

through the debasement of copper coinage. He pointed out that this debase-
ment also added to Spain's chronic price inflation by increasing the quantity
of money in the country. Philip had wiped out his public debt by debasing his
copper coins by two-thirds, thereby tripling the supply of copper money.
Mariana noted that debasement and government tampering with the market
value of money could only cause grave economic problems:

Only a fool would try to separate these values in such a way that the legal price
should differ from the natural. Foolish, nay, wicked the ruler who orders that a
thing the common people value, let us say, at five should be sold for ten. Men are
guided in this matter by common estimation founded on considerations of the
quality of things, and of their abundance or scarcity. It would be vain for a Prince
to seek to undermine these principles of commerce. 'Tis best to leave them intact
instead of assailing them by force to the public detriment.

Mariana begins De Monetae with a charming and candid apologia for

writing the book reminiscent of the great Swedish economist Knut Wicksell
over two and a half centuries later: he knows that his criticism of the king
courted great unpopularity, but everyone is now groaning under the hardships
resulting from the debasement, and yet no one has had the courage to criti-
cize the king's action publicly. Hence, justice requires that at least one man -
Mariana - should move in to express the common grievance publicly. When
a combination of fear and bribery conspire to silence critics, there should be
at least one man in the country who knows the truth and has the courage to
point it out to one and all.
Mariana then proceeds to demonstrate that debasement is a very heavy
hidden tax on the private property of his subjects, and that, pace his political
theory, no king has the right to impose taxes without the consent of the
people. Since political power originated with the people, the king has no
rights over the private property of his subjects, nor can he appropriate their
wealth by his whim and will. Mariana notes the papal bull Coena Domini,
which had decreed the excommunication of any ruler who imposes new
taxes. Mariana reasons that any king who practises debasement should incur
the same punishment, as should any legal monopoly imposed by the state
without the consent of the people. Under such monopolies, the state itself, or
its grantee, can sell a product to the public at a price higher than its market
worth, and this is surely nothing but a tax. 4
Mariana also set forth a history of debasement and its unfortunate effects;
and he pointed out that governments are supposed to maintain all standards
of weight and measure, not only of money, and that their record in adulterat-
ing those standards is most disgraceful. Castile, for example, had changed its
measures of oil and wine, in order to levy a hidden tax, and this led to great
confusion and popular unrest.
The late Spanish scholastics 121

Mariana's book attacking the king's debasement of the currency led the
monarch to haul the aged (73-year-old) scholar into prison, charging him
with the high crime of lese-majeste. The judges convicted Mariana of this
crime against the king, but the pope refused to punish him, and Mariana was
finally released from prison after four months on the condition that he would
cut out the offensive passages in his work, and that he would be more careful
in the future.
King Philip and his minions, however, did not leave the fate of the book to
an eventual change of heart on the part of Mariana. Instead, the king ordered
his officials to buy up every published copy of De Monetae Mutatione they
could get their hands on and to destroy them. Not only that; after Mariana's
death, the Spanish Inquisition expurgated the remaining copies, deleted many
sentences and smeared entire pages with ink. All non-expurgated copies were
put on the Spanish Index, and these in turn were expurgated during the
seventeenth century. As a result of this savage campaign of censorship, the
existence of the Latin text of this important booklet remained unknown for
250 years, and was only rediscovered because the Spanish text was incorpo-
rated into a nineteenth century collection of classical Spanish essays. Hence,
few complete copies of the booklet survive, of which the only one in the
United States is in the Boston Public Library.
The venerable Mariana was apparently not in enough trouble; after he was
jailed by the king, the authorities seized his notes and papers, and found there
a manuscript attacking the existing governing powers in the Society of Jesus.
An individualist unafraid to think for himself, Mariana clearly took little
stock in the Jesuit ideal of the society as a tightly disciplined military-like
body. In this booklet, Discurso de las Enfermedades de fa Compania, Molina
smote the Jesuit Order fore and aft, its administration and its training of
novices, and he judged his superiors in the Jesuit Order unfit to rule. Above
all, Mariana criticized the military-like hierarchy; the general, he concluded,
has too much power, and the provincials and other Jesuits too little. Jesuits,
he asserted, should at least have a voice in the selection of their immediate
When the Jesuit general, Claudius Aquaviva, found that copies of Mariana's
work were circulating in a kind of underground samizdat both inside and
outside the order, he ordered Mariana to apologize for the scandal. The feisty
and principled Mariana, however, refused to do so, and Aquaviva did not
press the issue. As soon as Mariana died, the legion of enemies of the Jesuit
Order published the Discurso simultaneously in French, Latin and Italian. As
in the case of all bureaucratic organizations, the Jesuits then and since were
more concerned about the scandal and not washing dirty linen in public than
in fostering freedom of inquiry, self-criticism, or correcting any evils that
Mariana might have uncovered.
J22 E~onomic thought before Adam Smith

The Jesuit Order never expelled their eminent member nor did he ever
leave. Still he was all his life regarded as a feisty trouble-maker, and as
unwilling to bow to orders or peer pressure. Father Antonio Astrain, in his
history of the Jesuit Order, notes that 'above all we must bear in mind that his
[Mariana's] character was very rough and unmortified'.5 Personally, in a
manner similar to the Italian Franciscan saints San Bernardino and
Sant' Antonino of the fifteenth century, Mariana was ascetic and austere. He
never attended the theatre and he held that priests and monks should never
degrade their sacred character by listening to actors. He also denounced the
popular Spanish sport of bull-fighting, which was also not calculated to
increase his popularity. Gloomily, Mariana would often stress that life was
short, precarious, and full of vexation. Yet, despite his austerity, Father Juan
de Mariana possessed a sparkling, almost Menckenesque, wit. Thus his one-
liner on marriage: 'Some one cleverly said that the first and the last day of
marriage are desirable, but that the rest are terrible' .
But probably his wittiest remark concerned bull-fighting. His attack on that
sport met with the objection that some theologians had defended the validity
of bull-fighting. Denouncing theologians who palliated crimes by inventing
explanations to please the masses, Mariana delivered a line closely anticipat-
ing a favourite remark by Ludwig von Mises on economists over three and a
half centuries later: 'there is nothing howsoever absurd which is not defended
by some theologian' .

4.8 The last Salamancans: Lessius and de Lugo

One of the last great Salamancans was a Jesuit but not a Spaniard. Leonard
Lessius (1554-1623) was a Fleming, born at Brecht near the great city of
Antwerp. During the sixteenth century, Antwerp had become the outstanding
commercial and financial centre of northern Europe, a focus of trade from the
Mediterranean. Lessius's parents had originally planned for him to become a
merchant, but he entered the University of Louvain, and was received into the
Jesuit Order in 1572. He taught philosophy for six years at the English college
at Douai, in France, and then went to Rome for two years to study under
Francisco Suarez. It was at Rome that Lessius became a Salamancan in spirit,
and from then on struck up a friendship with Luis de Molina. Returning to
Flanders, Lessius assumed a chair in philosophy and theology at the University
of Louvain. In theology, Lessius took up the great Molinist cause of free will
against a pro-determinist wing of theologians at Louvain. There he confronted
the crypto-Calvinist Dr Michael de Bay, chancellor of the University of Louvain,
who had adopted the concept of predestination and salvation of the elect.
Lessius also advanced the Suarezian view that original political power was
conferred by God on the people, and hence he attacked the growing adherence
to the divine right of kings, especially as put forth by King James I of England.
The late Spanish scholastics 123

Lessius's most important work was De Justitia et Jure (1605), the same
title as the works of Molina and de Banez. The book was enormously influen-
tial, being published in nearly 40 separate editions in Antwerp, Louvain,
Lyons, Paris and Venice. Not only was Lessius's knowledge of his predeces-
sors encyclopedic, but he was renowned for his knowledge and analysis of
contemporary commercial practices and contracts and for his applications of
moral principles to such practices. Lessius was consulted frequently on these
matters by statesmen and church leaders.
On the theory of price, Lessius, like his scholastic forbears, held the just
price to be that determined by the common estimate of the market. A legally
fixed price could also be the just price, but in contrast to many of his fellow
scholastics, for whom the legal price took precedence, Lessius pointed out
several cases in which the market price would have to be chosen over the
legal price. Following Juan de Medina, these were: first, when the market
price is lower; and second, when, 'in change of circumstances of increasing
or diminishing supply and similar factors, the authorities were notably negli-
gent in changing the legal price ... '. Even more strongly, even a 'private
individual' may request a price above the legal ceiling when the authorities
are 'ill informed about the commercial circumstances', which is likely, of
course, to happen a good deal of the time.
Attacking the cost of production theory of price, Lessius points to market
demand as the determinant of price, regardless of a merchant's expenses:

But if the merchant's expenses have been greater, that is his hard luck, and the
common price may not be increased for that reason, just as it need not be de-
creased even if he had no expenses at all. This is the merchant's situation; just as
he can make a profit if he has small expenses, so he can lose if his expenses are
very large or extraordinary.

Leonard Lessius had an insight into how all economic markets are interre-
lated, and he analysed and defended in turn the workings of foreign ex-
change, speculation, and the value of money and prices. In particular, Lessius
engaged in the most sophisticated analysis yet achieved of the workings of
wages and the labour market. Like other scholastics, he saw that wages were
governed by the same supply and demand principles, and therefore by the
same canons of justice, as any price. In asking what is the 'minimum justifi-
able wage' for any given occupation, Lessius declared that the existence of
other people willing to perform the work at any given wage shows that it is
not too low. In short, if a supply exists for the labour at that wage, how can it
be unjust?
Lessius also discovered and set forth the concept of psychic income as part
of a money wage. A worker can be paid in psychic benefit as well as money:
'if the work brings with it social status and emoluments, the pay can be low
124 Economic thought before Adam Smith

because status and associated advantages are, so to say, a part of the salary'.
Lessius also advanced the view that workers are hired by the employer
because of the benefits gained by the latter, and those benefits will be gauged
by the worker's productivity. Here are certainly the rudiments of the marginal
productivity theory of the demand for labour and hence of wages, which was
set forth by Austrians and other neoclassical economists at the end of the
nineteenth century. Indeed, Lessius's sophisticated analysis of wages and the
labour market were lost to mainstream economics until they were independ-
ently rediscovered in the late nineteenth century.
Lessius also stressed the importance of entrepreneurship in determining
income. This quality of entrepreneurial 'industry', of efficiently combining
jobs, is rare, and therefore the able entrepreneur can acquire a much higher
income than his fellows. Lessius also provides a sophisticated analysis of
money, demonstrating that the value of money is dependent on its supply and
demand. More abundant money will make it less valuable either for buying
goods or foreign exchange, and a greater demand for money will cause the
value of the currency to rise: 'For example, if great princes are in urgent need
of money for war or other public purposes, or if a large quantity of goods
come on to the market; for whenever money is urgently needed for matters of
great moment, so is it more highly esteemed in terms of goods.'
In his application of moral principle to trade practice, Lessius had a liber-
ating effect on trade. This was particularly true of usury, where Lessius,
while formally continuing the traditional prohibition, was actually a highly
influential force in its ongoing destruction. Lessius provided the most sweep-
ing defence so far of the guaranteed investment contract, and he treated
benignly even high rates of return on capital. He also removed all the remain-
ing restrictions on lucrum cessans. First, he widened the doctrine to apply,
not only to specific loans that would otherwise have been invested, but to any
funds, since they are liquid assets that always might have been invested. Thus
the pool of funds can, as a whole, be considered opportunity cost foregone of
investment, and therefore interest may be charged on a loan to that extent.
As Lessius puts it:

Although no particular loan, separately considered, be the cause, all, however,

collectively considered, are the cause of the whole lucrum cessans: for in order to
lend indiscriminately to those coming by, you abstain from business and you
undergo the loss of the profit which would come from this. Therefore, since all
collectively are the cause, the burden of compensation for this profit can be
distributed to single loans, according to the proportion of each.

But this meant that Leonard Lessius justified not only businessmen or
investors planning to invest their money, but also any people with liquid
funds, including professional money-lenders. For the first time among scho-
The late Spanish scholastics 125

lastics, all loans by money-lenders were now justified. With Leonard Lessius,
then, the last of the barriers to interest or usury were smashed, and only the
hollow shell of the formal prohibition remained.
Lessius adds that the lender may charge interest, even though a reserve of
money is kept out of fear, and even if that fear is irrational. Note that to
Lessius the important point was the reality of the lender's subjective fears,
not whether the fears are objectively correct.
Furthermore, Lessius takes the Medina-Molina assumption of risk argu-
ment for interest, about which they had tended to hedge in practice, and
widens it greatly. All loans, he points out, carry risks of non-payment: 'a
personal right is almost always joined with some difficulties and dangers'. In
a careful analysis of lenders' risk, Lessius pointed out that a greater risk, and
a greater charge, would be incurred by lending to someone not known to the
lender, or whose credit is doubtful.
But that is not all. For Leonard Lessius contributed his own, new and
powerful, weapon against the usury ban: a new 'title' or justification for
interest. The new justification - prefigured only by the neglected Summenhart
- was carentia pecuniae: charging for lack of money. Lessius pointed out
quite cogently that the lender suffers the lack of his money, the lack of his
liquidity, during the term of the loan, and therefore he is entitled to charge
interest for this economic loss. In short, Lessius saw perceptively that every-
one derives utility from liquidity, from the possession of money, and that
being deprived of this utility is a lack for which the lender may and will
demand compensation. Lessius pointed out that unexpected situations can
and do arise which could be met far more effectively if one's money were in
one's possession and not absent for a period of time. Time, in short, can and
should be charged for, for that reason, 'for it can never be obtained that the
merchants do not value a long-term concession higher than a short-term one' .
And those who are deprived of their money 'value more the lack of their
money for five months than the lack of it for four, and the lack of it for four
more than three, and this is partly because they lack the opportunity of
gaining with that money, partly because their principle is longer in dan-
ger... '.
Furthermore, Lessius points out that bills of exchange, or rights to future
money, are al ways at a discount compared to cash. This discount is, of
course, the rate of interest. Lessius explains: 'This is a matter of common
experience in that money provides the means to a multitude of things which
those rights do not provide. Therefore they may be bought at a lower price'.
Lessius also notes that merchants and exchangers daily determine the 'price
of the lack of money' on the Antwerp Bourse, averaging about 10 per cent;
and foreign exchanges, of inestimable value to the economy, would perish if
such prices could not be charged.
126 Economic thought before Adam Smith

Thus, for Lessius, the price for a lack of money is established on organized
loan markets. But to the extent that a loan market exists, there is no need to
justify each merchant's loan on the basis of his particular opportunity cost or
deprivation of funds. That price, which becomes the just price, is set on the
loan market. As Lessius puts it:

Moreover, any merchant seems able to demand this price... even though there is
no gain of his that stops because of his loan. This is the just price for the privation
of money among merchants; for the just price of an article or obligation in any
community is that which is put upon it by that community in good faith for the
sake of the common good in view of all the circumstances ... Therefore, even if
through the privation of money for a year there is no gain of mine that stops and
no risk of capital, because such a price for just causes has been put upon this
privation, I may demand it just as the rest do.

With carentia pecuniae, therefore, Leonard Lessius delivered the final

blow to smash the usury prohibition, while unfortunately still retaining the
prohibition in a formal sense. It is no wonder that Professor Noonan, the
great scholar of the scholastics on usury, holds Lessius to be 'the theologian
whose views on usury most decidedly mark the arrival of a new era. More
than any predecessor he would probably have felt completely at ease in the
modern financial world. '6
The last Salamancan was the Jesuit Cardinal Juan de Lugo (1583-1660).
De Lugo takes the Salamancans into the seventeenth century, the century of
the decline of Spanish power in Europe. After studying law and theology at
Salamanca, de Lugo went to Rome to teach at the great Jesuit College. After
teaching theology in Rome for 22 years, de Lugo was made a cardinal and
became a member of various influential Church commissions in Rome. A
learned and comprehensive theoretician, de Lugo has been called the greatest
moral theologian since Aquinas. Author of a book on psychology and another
on physics, de Lugo's masterwork in the area of law and economics was De
Justitia et Jure, published in 1642. This work went through numerous edi-
tions during the seventeenth and eighteenth centuries, its last edition having
appeared as late as 1893.
In his theory of value, this culminating work of the Salamancan School
displayed a subtle and advanced subjective utility explanation. The prices of
goods, de Lugo pointed out, fluctuate 'on account of their utility in respect of
human need, and then only on account of estimation; for jewels are much less
useful than corn in the house, and yet their price is much higher'. Here de
Lugo, once again, comes very close to the late nineteenth century marginal
utility explanation of value, and to solving the value paradox. Corn is higher
than jewellery in use value, but is cheaper in price. The answer to this
paradox is that subjective estimates or valuations differ from objective use-
The late Spanish scholastics 127

value, and these in turn are affected by the relative scarcities of supply.
Again, only the marginal concept is needed to complete the explanation.
Subjectivity, de Lugo goes on, means that the 'estimation' or valuation is
going to be conducted by 'imprudent' as well as 'prudent' men (no 'rational-
ity' or 'economic man' assumptions here!). In short, the just price is the
market price determined by demand and consumer valuations; and, if the
consumers are foolish or judge differently than we do, then so be it. The
market price is a just price all the same.
In his discussion of merchants' activities, de Lugo adds to the previous
opportunity-cost concept of mercantile expenses. For a merchant will only
continue to supply a product if the price covers his expenses and the rate of
profit he could earn in other activities.
In his theory of money, Cardinal de Lugo follows his confreres: the value
or purchasing power of money is determined by the quality of the metal
content of coins, the supply of and the demand for money. De Lugo also set
forth the idea that money moves from the area of its lower to that of its higher
On usury, de Lugo provided a mixed bag. On the one hand, he draws back
from the clear implications of Lessius and others that the usury ban should
become a hollow shell. For that reason, he refuses to accept Lessius's will-
ingness to have the lender charge for lack of money during the period of the
loan. On the other hand, de Lugo widens still further the powerful 'pro-
usury' weapons of risk and lucrum cessans. He broadens the concept of risk
to include explicitly every loan; for, as he puts it with remarkable bluntness:
'Where today is there to be found a debt so placed in safety that in security it
equals ready cash?' But that, of course, justifies the charging of interest on
every loan. De Lugo also widens lucrum cessans still further, for he allows
the lender to include not only probable profit foregone from a loan, but also
the expectation of remote profit foregone. Also, the lender, in charging inter-
est, may calculate the profit he would have made by re-investing the lost
profit on a loan. In sum, de Lugo asserts sweepingly that lucrum cessans is
'the general title for purging usury'.

4.9 The decline of scholasticism

Sixteenth century Spain has well been called the Indian Summer of scholasti-
cism. After that, its decline, not only in Spain but throughout Europe, was
rapid. Part of the reason was a stubborn clinging to the form of the prohibi-
tion of usury. A ban which had made little sense, either by natural or divine
law, and which entered Christian thought quite late in the day, was clung to
and strengthened in an almost perpetual, irrational frenzy. The systematic
weakening of the usury ban by some of the finest minds in Christendom had
the beneficial effect of sanctioning the charging of interest, but at the long-
128 Economic thought before Adam Smith

run cost of discrediting the scholastic method itself. By clinging to the outer
husk of banning usury as a mortal sin, while at the same time finding increas-
ingly sophisticated ways of allowing merchants and finally professional money-
lenders to get around the ban, the scholastics opened themselves to unfair
charges of evasion and hypocrisy.
The deadly assault on scholasticism came from two contrasting but allied
camps. One was the rising groups of Protestants without, and crypto-Calvin-
ists within, the Church who denounced it for its alleged decadence and moral
laxity. Protestantism, after all, was in large part a drive to cast off the sophis-
ticated trappings and the refined doctrine of the Church, and to go back to the
alleged simplicity and moral purity of early Christianity. Made the very
emblem of this hostility was the Jesuit Order, the devoted spearhead of the
Counter-Reformation, that order which had taken up from the faltering Do-
minicans the torch of Thomism and scholasticism.
The second camp of enemies of scholasticism was the rising group of
secularists and rationalists, men who might be Catholics or Protestants in
their private lives but who mainly wanted to get rid of such alleged excres-
cences on modern life as the political application of religious principles or
the prohibition of usury. Consequently, the crypto-Calvinists attacked the
Jesuits for weakening the prohibition of usury, while the secularists attacked
them for keeping it.
Neither wing of the opposition was impressed with the brilliance of the
scholastic arguments to justify usury, nor with the entire scholastic and Jesuit
enterprise of 'casuistry': that is, of applying moral principles, both natural
and di vine, to concrete problems of daily life. One might think that the task
of casuistry should be deemed an important and even noble one; if general
moral principles exist, why shouldn't they be applied to daily life? But both
sets of opponents rapidly succeeded in making the very word 'casuistry' a
smear term: for the one, a method of weaseUing out of strict moral precepts;
for the other, a method of imposing outdated and reactionary dogmas upon
the world.
Why, despite the great work of Summenhart and others, did the Catholic
Church persist in keeping the formal ban on usury for two centuries there-
after? Probably for the same reason that the Church has always tended to
maintain stoutly that it never changes its doctrines while it keeps doing so.
Changing content within an unchanging formal shell has long been character-
istic, not only of the Catholic Church, but of any long-lived bureaucratic
institution, whether it be the Church or the constitutional interpretations of
the Supreme Court of the United States.
The two-pronged alliance against scholasticism outside and within the
Catholic Church cut far deeper than the quarrel over usury. At the root of
Catholicism as a religion is that God can be approached or apprehended
The late Spanish scholastics 129

through all the faculties of man, not simply through faith but through reason
and the senses. Protestantism, and especially Calvinism, sternly put God
outside man's faculties, considering, for example, sensate embodiments of
man's love for God in painting or sculpture as blasphemous idolatry to be
destroyed in order to clear the path for the only proper communication with
God: pure faith in revelation. The Thomist stress on reason as a means of
apprehending God's natural law and even aspects of divine law was reviled
by a sole Protestant emphasis on faith in God's arbitrary will. While some
Protestants adopted natural law theories, the basic Protestant thrust was op-
position to any natural law attempts to derive ethics or political philosophy
from the use of man's reason. For Protestants, man was too inherently sinful
and corrupt for his reason or his senses to be anything but an embodiment of
corruption; only pure faith in God's arbitrary and revealed commands was
permissible as a groundwork for human ethics. But this meant that for Protes-
tants there was also very little natural law groundwork from which to criti-
cize actions of the state. Calvinism and even Lutheranism provided little or
no defences against the absolutist state which burgeoned throughout Europe
during the sixteenth century and triumphed in the seventeenth century.
If Protestantism opened the way for the absolute state, the secularists of
the sixteenth and seventeenth centuries embraced it. Shorn of natural law
critiques of the state, new secularists such as the Frenchman Jean Bodin
embraced the state's positive law as the only possible criterion for politics.
Just as the anti-scholastic Protestants extolled God's arbitrary will as the
foundation for ethics, so the new secularists raised the state's arbitrary will to
the status of unchallengeable and absolute 'sovereign'.
On the deeper level of the question of how we know what we know, or
'epistemology', Thomism and scholasticism suffered from the contrasting
but allied assaults by the champions of 'reason' and 'empiricism'. In Thomist
thought, reason and empiricism are not separated but allied and interwoven.
Truth is built up by reason on a solid groundwork in empirically known
reality. The rational and empirical were integrated into one coherent whole.
But in the first part of the seventeenth century, two contrasting philosophers
managed between them the fatal sundering of the rational and the empirical
that continues to plague the scientific method until the present day. These
were the Englishman Francis Bacon (1561-1626) and the Frenchman Rene
Descartes (1596-1650). Descartes was the champion of a dessicated math-
ematical and absolutely certain 'reason' divorced from empirical reality,
while Bacon was the advocate of sifting endlessly and almost mindlessly
through the empirical data. Both the distinguished English lawyer who rose
to become Lord Chancellor (Lord Verulam), Viscount of the Realm, and
corrupt judge, and the shy and wandering French aristocrat, agreed on one
crucial and destructive point: the severing of reason and thought from empiri-
130 Economic thought before Adam Smith

cal data. Hence, from Bacon there stemmed the English 'empiricist' tradi-
tion, steeped mindlessly in incoherent data, and from Descartes the purely
deductive and sometimes mathematical tradition of continental 'rationalism'.
All this was of course an assault on natural law, which had long integrated
the rational and the empirical.
As a corollary to, and intermingled with, this basic and systematic change
in European thought in the 'early modern' period (the sixteenth and espe-
cially seventeenth centuries) was a radical shift in the locus of intellectual
activity away from the universities. The theologians and philosophers who
wrote and thought on economics, law, and other disciplines of human action
during the medieval and Renaissance periods were university professors.
Paris, Bologna, Oxford, Salamanca, Rome, and many other universities were
the milieu and arena for intellectual output and combat during these centu-
ries. And even the Protestant universities in the early modern period contin-
ued to be centres of natural law teaching.
But the major theorists and writers of the seventeenth and then the eight-
eenth centuries were almost none of them professors. They were pamphlet-
eers, businessmen, wandering aristocrats such as Descartes, minor public
officials such as John Locke, churchmen such as Bishop George Berkeley_
This shift of focus was greatly facilitated by the invention of printing, which
made the publication of books and writings far less costly and created a much
wider market for intellectual output. Printing was invented in the mid-fif-
teenth century, and by the early sixteenth century it became possible, for the
first time, to make a living as an independent writer, selling one's books to a
commercial market.
This shift from university professors to private lay citizens meant, at least
for that era, a move away from traditional modes of learning and thought
towards a more diverse spectrum of idiosyncratic individual views. In a
sense, this acceleration of diversity went hand in hand with one of the most
important impacts of the Protestant Reformation on social and religious
thought. For, in the long run, far more important than such theological dis-
putes as over free will vs predestination and over the significance of com-
munion was the shattering of the unity of Christendom. Luther and even
Calvin had no intention of fragmenting Christendom; on the contrary, each
set out to reform a unified Christian Church. But the consequences of their
revolution was to open Pandora's box. Whereas frictions and heresies had
before been either stamped out or accommodated within the Church, now
Christianity split apart in literally hundreds of different sects, some quite
bizarre, each propounding different theologies, ethics, and prescriptions for
social life.
While the variegated strains of social thought stemming from this break
within Christianity included rationalists and individualist groups such as the
The late Spanish scholastics 131

Levellers as well as absolutists, the value of the resulting diversity must be

offset by the unfortunate fading away of scholasticism and Thomism from
Western thought.
The severing of the unity of European thought was intensified by the shift
during these centuries of written literature from Latin to the vernacular in
each country. During the Middle Ages, all intellectuals, jurists and theolo-
gians in Europe wrote in Latin, even though of course the spoken language in
each country was the vernacular. This meant that for scholars and intellectu-
als there was only one language, and in a sense one country, so that English-
men, Frenchmen, Germans, etc. could easily read and be influenced by each
others' books and articles. Europe was truly one intellectual community.
In the Middle Ages, only Italian authors wrote, from time to time, in Italian
as well as Latin. But the Protestant Reformation gave tremendous impetus
toward the abandonment of Latin, since Protestants felt it vital for the Chris-
tian masses to read and study the Bible in language they could understand.
Martin Luther's famous translation of the Bible into German, in the sixteenth
century, inspired a rapid change towards writing in the national language. As
a result, since the sixteenth and seventeenth centuries, economic, social, and
religious thought began to be isolated in each national language. Later con-
tinuing influences of scholastic economic thought became confined to writers
in Catholic countries.

4.10 Parting shots: the storm over the Jesuits

While the inspiration for creative and outstanding scholastics was played out,
the seventeenth century saw the influence of scholasticism continue in Spain
and spread to other countries. The great champion and disseminator of the
Salamanca School was of course the Jesuit Order. In Spain and elsewhere the
Jesuits produced a huge number of manuals on moral theology for the use of
confessors, in which they discussed, among other matters, the application of
theological and moral principles to the ethics of business. The most important
instance was the pious Father Antonio de Escobar y Mendoza's (1589-1669)
Theologiae Moralis (1652). This extremely popular work was reprinted in 37
editions in a brief period of time, and was also translated and published in
France, Belgium, Germany and Italy. Escobar's work was basically a restate-
ment of two dozen previous books on moral theology, mainly by such Span-
ish writers as Molina, Suarez and de Lugo. He repeated the Salamancan
emphasis on common estimation, scarcity, and the supply of money as deter-
minants of market price.
The Salamanca School was particularly influential in Italy. There the
Genoese philosopher and jurist, Sigismundo Scaccia (c.1568-1618), pub-
lished a Tractatus de Commerciis et Cambiis in 1618, which was reprinted
often in Italy, France, and Germany down to the middle of the eighteenth
132 Economic thought before Adam Smith

century. Scaccia's Tractatus repeated the price and foreign exchange theories
of the Salamancans, including Covarrubias, Azpilcueta and Lessius.
Other prominent neo-Salamancans in Italy were the Jesuit Cardinal
Giambattista de Luca (1613-83), who published his multi-volume Theatrum
Veritatis et Justitiae in Rome in the 1670s; Martino Bonacina (c.1585-1631);
and Antonino Diana (1585-1663).
In France, however, the influential Escobar manual ran into a storm of
abuse for its sophisticated permissive attitude towards usury_ The abuse was
led by an influential crypto-Calvinist group within the French Catholic Church
that raised a furious row about the alleged moral laxity of the Jesuit Order.
The assault on the Jesuits and on their devotion to reason and the freedom
of the will had begun in Belgium, and was accelerated towards the end of the
sixteenth century by Dr Michael de Bay, chancellor of the great University of
Louvain. Bay, and Baianism, launched a furious intramural warfare within
Louvain against Leonard Lessius and the Jesuits on the faculty. Chancellor de
Bay managed to convert most of the Louvain faculty to his creed, which
adopted the Calvinist creed of predestination of an elect. In France, the
absolutist pro-royalists began a bitter campaign against the Jesuit Order,
which they linked with the Catholic Leaguers and the assassination of the
centrist and pro-Cal vinist Henrys. In particular, the attorney Antoine Arnauld,
defending royal absolutism to the hilt, petitioned for the expulsion of the
Jesuits from France, angrily declaiming that they were the worst enemies of
'the sacred doctrine of the Divine Right of Kings'. Arnauld was originally
employed to press the case against the Jesuits by the University of Paris, and
its theological faculty of the Sorbonne, which had also been swept by the
crypto-Calvinist tide.
In the early seventeenth century, two disciples of Michael de Bay, both
former students of the Jesuits, took up the cudgels for his cause. Most
important was Cornelius Jansen, founder of the neo-Calvinist Jansenist move-
ment, which became extremely powerful in France. Jansen, like many openly
Protestant theologians, demanded to go back to the moral purity of St Augus-
tine and of the Christian doctrines of the fourth and fifth centuries. If Jansen
was the theoretician of the movement, his friend the Abbe Saint-Cyran was
the brilliant tactician and organizer. With the help of Mere Angelique, supe-
rior of the nuns of Port-Royal, Saint-Cyran gained control of these influential
nuns. Mere Angelique was the daughter of Antoine Arnauld, and indeed a
dozen of the Port-Royal nuns were members of the powerful Arnauld family.
One of the Port-Royal nuns was the sister of the brilliant young philoso-
pher, mathematician, and French stylist Blaise Pascal, and young Pascal took
up the Jansenist cause with a witty and blistering attack on the Jesuits,
particularly Escobar, for his alleged moral failure in being soft on usury.
Pascal even coined a popular new term, escobarderie, with which he de-
The late Spanish scholastics 133

nounced the important discipline of casuistry as being evasive quibbling.

Another victim of Pascal's poison pen was the austere French Jesuit Etienne
Bauny. In his Somme des Pechez (1639), Bauny extended the weakening of
the usury ban by going so far as to justify interest charges higher than the
maximum rate permitted by royal decree for, after all 'the debtors entered
into them willingly'. Moreover, Bauny's trenchant voluntaryism defended
the usury contract on another incisive ground: since it is licit for a lender to
hope for a borrower to give him a free gift, it should also be licit for the
lender and the borrower to make such a definite pact beforehand. How can
making a contract for something be evil if hoping for the result·is permissi-
ble? Once permit such justifications by voluntary choice, and then of course
all assaults on usury and other free market activities must go by the board.
Although the Jansenists were eventually condemned by the pope, Pascal's
scurrilous rampage against the Jesuits had considerable effect in helping to
end the reign of scholastic thought, at least in France.

4.11 Notes
1. Frank Bartholomew Costello, S.1., The Political Philosophy (~lLuis de Molina, S.J. (Spokane:
Gonzaga University Press, 1974), p. 231. .
2. Richard Tuck, Natural Rights Theories (Cambridge: Cambridge University Press, 1979),
3. The great Molina had also had difficulties in not having a theology doctorate, which was
finally conferred upon him by the Jesuit Order with considerable reluctance.
4. The form of Philip's debasement, as Mariana pointed out, was either to double the face
value of recoined copper while keeping the same weight, so that the increased value went
as profit to the royal treasury; or to keep the face value of silver/copper coins, take out the
silver and reduce the copper weight, which gave the treasury a two-thirds profit.
5. Quoted by John Laures, 5.1., The Political Economy (~l Juan de Mariana (New York:
Fordham University Press, 1928), p. 18.
6. 10hn T. Noonan, Jr, The Scholastic Analysis (~r Usury (Cambridge, Mass.: Harvard Univer-
sity Press, 1957), p. 222.
5 Protestants and Catholics

5.1 Luther, Calvin, and state absolutism 137

5.2 Luther's economics 139
5.3 The economics of Calvin and Calvinism 140
5.4 Calvinists on usury 143
5.5 Communist zealots: the Anabaptists 146
5.6 Totalitarian communism in Munster 150
5.7 The roots of messianic communism 159
5.8 Non-scholastic Catholics 164
5.9 Radical Huguenots 167
5.10 George Buchanan: radical Calvinist 171
5.11 Leaguers and politiques 173
5.12 Notes 174

Protestants and Catholics 137

5.1 Luther, Calvin, and state absolutism

We have seen that the Counter-Reformation of the sixteenth century had to
carryon a two-front intellectual war on behalf of scholasticism and natural
law: against Protestants and crypto-Protestants, and also against secularist
apologists for an absolute state. These latter two seemingly contrasting groups
were closer than merely having the same enemy. In many ways, they were
twins and not simply fortuitous allies.
Despite their many differences, Martin Luther (1483-1546), son of a Ger-
man miner, and John Calvin (born Jean Cauvin, of which Calvin is the
Latinized name) (1509-64), son of a French attorney and leading town offi-
cial, whose new religious sects between them swept northern Europe, agreed
on some crucial fundamentals. In particular, their social philosophy and
theology rested on the basic proposition that man is totally depraved, steeped
in sin. If this is so, man could scarcely achieve salvation even partially
through his own efforts; therefore, salvation comes, not from man's non-
existent free will, but as an arbitrary and unintelligible gift of unearned grace
from God, a gift which He for His own reasons hands out only to a predes-
tined elect. All of the non-elect are damned. Furthermore, as man is totally
depraved and a slave of Satan, his reason -let alone his sense of enjoyment -
can never be trusted. Neither reason nor the senses can in any way be trusted
to form a social ethics; that can only come from the divine will through
Biblical revelation.
To this day, fundamentalist Calvinists are taught to sum up their creed in the
acronym TULIP, perhaps also recalling the Dutch fastnesses of Calvinism:

T- Total damnation
U- Unconditional election
L - Limited atonement
I - Irresistible grace
P - Perseverance of the saints

In short, man is damned totally, his atonement can only be limited and
insufficient; the only thing that can and does unconditionally save an elect
among men is God's irresistible grace.
If reason cannot be used to frame an ethic, this means that Luther and
Calvin had to, in essence, throw out natural law, and in doing so, they
jettisoned the basic criteria developed over the centuries by which to criticize
the despotic actions of the state. Indeed, Luther and Calvin, relying on
isolated Biblical passages rather than on an integrated philosophic tradition,
opined that the powers that be are ordained of God, and that therefore the
king, no matter how tyrannical, is divinely appointed and must always be
138 Economic thought before Adam Smith

This doctrine, of course, played into the hands of the rising absolute
monarchs and their theoreticians. Whether Catholic or Protestant, these secu-
larists pushed their religion to the background of life; socially and politically
they held, as we shall see below, that the state and its ruler are absolute, that
the ruler must seek to preserve and expand his power, and that his dictates
must be obeyed. It is therefore the early Jesuits of the Counter-Reformation
who saw and analysed the crucial link between the Protestant leaders and
such amoralist secularists as Niccolo Machiavelli. As Professor Skinner writes:

The early Jesuit theorists clearly recognized the pivotal point at which the politi-
cal theories of Luther and Machiavelli may be said to converge: both of them
were equally concerned, for their own very different reasons, to reject the idea of
the law of nature as an appropriate moral basis for political life. It is in conse-
quence in the works of the early Jesuits that we first encounter the familiar
coupling of Luther and Machiavelli as the two founding fathers of the impious
modern State. 1

Moreover, Luther had to rely for the spread of his religion on the German
and other European monarchs; his preaching of all-out obedience to the ruler
was reinforced by this practical concern. In addition, the secular princes
themselves had a juicy economic motive for becoming Protestant: the confis-
cation of the often wealthy monasteries and other Church property. Underly-
ing at least part of the motives of the monarchy and nobility of the new
Protestant states was the lure of greed-and-grab. Thus, when Gustav Vasa,
king of Sweden, became a Lutheran in 1524, he immediately transferred the
Church tithes into taxes going to the Crown, and three years later he confis-
cated the entire property of the Catholic Church. Similarly, in Denmark the
newly Lutheran kings seized the monastic lands, and confiscated the lands
and temporal powers of the Catholic bishops. In Germany Albert of
Hohenzollern accompanied his Lutheran conversion by seizing the lands of
the Catholic Teutonic knights, while Philip of Hesse grabbed all the monastic
lands in his state, much of the proceeds going into his own personal coffers.
In addition to grabbing the lands and revenues, the monarchs in each of the
lands seized control of the Church itself, and converted the Lutheran Church
into a state-run Church, to the plaudits of Martin Luther and his disciples,
who championed the idea of a state-dominated Church. In the city of Geneva,
John Calvin and his disciples imposed a totalitarian theocracy for a time, but
this Church-run state proved to be an aberration in mainstream Calvinism,
which triumphed in Scotland, Holland and Switzerland, and had considerable
influence in France and England.
An outstanding example of a state-run Church as a motive for Reformation
was the establishment of the Anglican Church in England. The defection
from Catholicism of Henry VIII was accompanied by the confiscation of the
Protestants and Catholics 139

monasteries, and the parcelling out of these lands - either by gift or by sale at
low cost - to favoured groups of nobles and gentry. About two thousand
monks and nuns throughout England, as well as about eight thousand labour-
ers in the monasteries, were thus dispossessed, for the benefit of a new class
of large landholders beholden to the Crown and not likely to permit any
return to a Roman Catholic monarchy in Britain.

5.2 Luther's economics

As a man fundamentally opposed to later scholastic refinements or even to the
kind of integral, systematic thought of scholasticism, as a man hankering after
what he believed to be Augustinian purity, Martin Luther cannot be expected to
have looked very kindly upon commerce or upon the later scholastic justifica-
tions for usury. And indeed he did not. A confused, contradictory, and
unsystematic thinker at best, Luther was unsurprisingly least consistent in an
area of secular affairs - economics - in which he had little interest.
Thus, on a crucial question which had vexed scholastics for centuries:
whether private property is natural or conventional, i.e. merely the product of
positive law, Luther was characteristically anti-intellectual. He was not inter-
ested in such questions; therefore they were trivial: 'it is vain to mention
these things; they cannot be acquired by thought, ... '. As Dr Gary North has
commented, 'So much for 1500 years of debate'.2 All in all, Richard Tawney's
assessment of Luther on these matters is perhaps not an overstatement;

Confronted with the complexities of foreign trade and financial organization, or

with the subtleties of economic analysis, he [Luther] is like a savage introduced to
a dynamo or a steam engine. He is too frightened and angry even to feel curiosity.
Attempts to explain the mechanism merely enrage him; he can only repeat that
there is a devil in it, and that good Christians will not meddle with the mystery of

The rest is confusion. Upholding the commandment prohibiting theft meant

that Luther had to be, at least in some sense, an advocate of the rights of
private property. But to Luther, 'stealing' meant not only what everyone
defines to be theft, but also 'taking advantage of others at market, ware-
houses, wine and beer cellars, workshops ... '. In different writings, some-
times even within the same one, Luther was capable of denouncing a person
who 'makes use of the market in his own wilful way, proud and defiant, as
though he had a good right to sell at as high a price as he chose, and none
could interfere', while also writing: 'Anyone may sell what he has for the
highest price he can get, so long as he cheats no one', and then defining such
cheating as simply using false weights and measures.
On the just price, Luther tends to revert to the minority medieval view that
a just price is not the market price but a cost of production plus expenses and
140 Economic thought before Adam Smith

profit for labour and risk of the merchant. On usury in particular, Luther
tended to revert to the drastic prohibition that the Catholic Church had long
left behind. The census contract he would ban, as he would lucrum cessans;
money was sterile; there should be no increase in price for time as against
cash payments for goods, etc. All the old nonsense, which the scholastics had
spent centuries burying or transforming, was back intact. It is certainly fitting
that, as we have seen, one of Luther's great theological opponents in Ger-
many was his former friend, Johann Eck, a Catholic theologian and friend of
the great Fugger banking family, who was even ahead of his time in arguing
in thoroughgoing fashion in favour of usury.
Yet, despite his opposition to usury, Luther advised the young ruler of
Saxony not to abolish interest or to relieve debtors of the burden of paying it.
Interest is, after all, a 'common plague that all have taken upon themselves.
We must put up with it, therefore, and hold debtors to it' .
Some of these contradictions can be reconciled in the light of Luther's
deeply pessimistic view of man and therefore of human institutions. In the
wicked secular world, he believed, we cannot expect people or institutions to
act in accordance with the Christian gospel. Therefore, in contrast to the
Catholic attempt through the art of casuistry to apply moral principles to
social and political life, Luther tended to privatize Christian morality and to
leave the secular world and its rulers to operate in a pragmatic and, in
practice, an unchecked manner.

5.3 The economics of Calvin and Calvinism

John Calvin's social and economic views closely parallel Luther's, and there
is no point in repeating them here. There are only two main areas of differ-
ence: their views on usury, and on the concept of the 'calling', although the
latter difference is more marked for the later Calvinist Puritans of the seven-
teenth century.
Calvin's main contribution to the usury question was in having the cour-
age to dump the prohibition altogether. This son of an important town
official had only contempt for the Aristotelian argument that money is
sterile. A child, he pointed out, knows that money is only sterile when
locked away somewhere; but who in their right mind borrows to keep
money idle? Merchants borrow in order to make profits on their purchases,
and hence money is then fruitful. As for the Bible, Luke's famous injunc-
tion only orders generosity towards the poor, while Hebraic law in the Old
Testament is not binding in modern society. To Calvin, then, usury is
perfectly licit, provided that it is not charged in loans to the poor, who
would be hurt by such payment. Also, any legal maximum of course must
be obeyed. And finally, Cal vin maintained that no one should function as a
professional money-lender.
Protestants and Catholics 141

The odd result was that hedging his explicit pro-usury doctrine with quali-
fication, Calvin in practice converged on the views of such scholastics as
Biel, Summenhart, Cajetan and Eck. Calvin began with a sweeping theoreti-
cal defence of interest-taking and then hedged it about with qualifications;
the liberal scholastics began with a prohibition of usury and then qualified it
away. But while in practice the two groups converged and the scholastics, in
discovering and elaborating upon exceptions to the usury ban, were theoreti-
cally more sophisticated and fruitful, Calvin's bold break with the formal ban
was a liberating breakthrough in Western thought and practice. It also threw
the responsibility for applying teachings on usury from the Church or state to
the individual's conscience. As Tawney puts it, 'The significant feature in his
[Calvin's] discussion of the subject is that he assumes credit to be a normal
and inevitable incident in the life of a society.' 4
A more subtle difference, but in the long run perhaps having more influ-
ence on the development of economic thought, was the Calvinist concept of
the 'calling'. This new concept was embryonic in Calvin and was developed
further by later Calvinists, and especially Puritans, in the late seventeenth
century. Older economic historians, such as Max Weber, made far too much
of the Calvinist as against Lutheran and Catholic conceptions of the 'calling' .
All these religious groups emphasized the merit of being productive in one's
labour or occupation, one's 'calling' in life. But there is, especially in the
later Puritans, the idea of success in one's calling as a visible sign of being a
member of the elect. The success is striven for, of course, not to prove that
one is a member of the elect destined to be saved but, assuming that one is in
the elect by virtue of one's Calvinist faith, to strive to labour and succeed for
the glory of God. A Calvinist emphasis on postponement of earthly gratifica-
tion led to a particular stress on saving. Labour or 'industry' and thrift,
almost for their own sake, or rather for God's sake, were emphasized in
Calvinism much more than in the other segments of Christianity.5
The focus, then, both in Catholic countries and in scholastic thought,
became very different from that of Calvinism. The scholastic focus was on
consumption, the consumer, as the goal of labour and production. Labour
was not so much a good in itself as a means toward consumption on the
market. The Aristotelian balance, or golden mean, was considered a requisite
of the good life, a life leading to happiness in keeping with the nature of man.
And that balanced life emphasized the joys of consumption, as well as of
leisure, in addition to the importance of productive effort. In contrast, a rather
grim emphasis on work and on saving began to be stressed in Calvinist
culture. This de-emphasis on leisure of course fitted with the iconoclasm that
reached its height in Calvinism - the condemnation of the enjoyment of the
senses as a means of expressing religious devotion. One of the expressions of
this conflict came over religious holidays, which Catholic countries enjoyed
142 Economic thought before Adam Smith

in abundance. To the Puritans, this was idolatry; even Christmas was not
supposed to be an occasion for sensate enjoyment.
There has been considerable dispute over the 'Weber thesis', propounded
by the early twentieth century German economic historian and sociologist,
Max Weber, which attributed the rise of capitalism and the Industrial Revolu-
tion to the late Calvinist concept of the calling and the resulting 'capitalist
spirit' . For all its fruitful insights, the Weber thesis must be rejected on many
levels. First, modern capitalism, in any meaningful sense, begins not with the
Industrial Revolution of eighteenth and nineteenth centuries but, as we have
seen, in the Middle Ages and particularly in the Italian city-states. Such
examples of capitalist rationality as double-entry bookkeeping and various
financial techniques begin in these Italian city-states as well. All were Catho-
lic. Indeed, it is in a Florentine account book of 1253 that there is first found
the classic pro-capitalist formula: 'In the name of God and of profit'. No city
was more of a financial and commercial centre than Antwerp in the sixteenth
century, a Catholic centre. No man shone as much as financier and banker as
Jacob Fugger, a good Catholic from southern Germany. Not only that: Fugger
worked all his life, refused to retire, and announced that 'he would make
money as long as he could'. A prime example of the Weberian 'Protestant
ethic' from a solid Catholic! And we have seen how the scholastic theolo-
gians moved to understand and accommodate the market and market forces.
On the other hand, while it is true that Calvinist areas in England, France,
Holland and the north American colonies prospered, the solidly Calvinist
Scotland remained a backward and undeveloped area, even to this day. 6
But even if the focus on calling and labour did not bring about the Indus-
trial Revolution, it might well have led to another outstanding difference
between Calvinist and Catholic countries - a crucial difference in the devel-
opment of economic thought. Professor Emil Kauder's brilliant speculation
to this effect will inform the remainder of this work. Thus Kauder:

Calvin and his disciples placed work at the center of their social theology ... All
work in this society is invested with divine approval. Any social philosopher or
economist exposed to Calvinism will be tempted to give labor an exalted position
in his social or economic treatise, and no better way of extolling labor can be
found than by combining work with value theory, traditionally the very basis of an
economic system. Thus value becomes labor value, which is not merely a scien-
tific device for measuring exchange rates but also the spiritual tie combining
Divine Will with economic everyday life. 7

In their extolling of work, the Calvinists concentrated on systematic, con-

tinuing industriousness, on a settled course of labour. Thus the English Puri-
tan divine Samuel Hieron opined that 'He that hath no honest business about
which ordinarily to be employed, no settled course to which he may betake
Protestants and Catholics 143

himself, cannot please God'. Particularly influential was the early seven-
teenth century Cambridge University academic, the Rev. William Perkins,
who did much to translate Calvinist theology into English practice. Perkins
denounced four groups of men who had 'no particular calling to walk in':
beggars and vagabonds; monks and friars; gentlemen who 'spend their days
in eating and drinking'; and servants, who allegedly spent their time waiting.
All these were dangerous because unsettled and undisciplined. Particularly
dangerous were wanderers, who 'avoided the authority of all'. Furthermore,
believed Perkins, the 'lazy multitude was always inclined ... to popish opin-
ions, always more ready to play than to work; its members would not find
their way to heaven'.8
In contrast to the Calvinist glorification of labour, the Aristotelian-Thomist
tradition was quite different:

Instead of work, moderate pleasure-seeking and happiness form the center of

economic actions, according to Aristotelian and Thomistic philosophy. A certain
balanced hedonism is an integrated part of the Aristotelian theory of the good life.
If pleasure in a moderate form is the purpose of economics, then following the
Aristotelian concept of the final cause, all principles of economics including
valuation must be derived from this goal. In this pattern of Aristotelian and
Thomistic thinking, valuation has the function of showing how much pleasure can
be derived from economic goodsY

Hence, Great Britain, heavily influenced by Calvinist thought and culture,

and its glorification of the mere exertion of labour, came to develop a labour
theory of value, while France and Italy, still influenced by Aristotelian and
Thomist concepts, continued the scholastic emphasis on the consumer and
his subjective valuation as the source of economic value. While there is no
way to prove this hypothesis conclusively, the Kauder insight has great value
in explaining the comparative development of economic thought in Britain
and in the Catholic countries of Europe after the sixteenth century.

5.4 Calvinists on usury

Perhaps because he was considered the greatest French jurist of the mid-
sixteenth century, the merit of the contributions of Charles Du Moulin (latinized
name, Carolus Molinaeus) (1500-66), has been highly inflated, in his and in
later times. A Catholic who later converted to Calvinism and was then forced
to leave for Germany, Du Moulin had nothing but contempt for scholasti-
cism, which he attacked vehemently in his highly publicized work, The
Treatise on Contracts and Usury (Paris, 1546). Whereas Molinaeus officially
denounced the prohibition of usury, in actuality his views were little different
from those of the contemporary scholastics or indeed of Calvin. While clearly
denouncing the view that money is sterile and demonstrating that it is as
144 Economic thought before Adam Smith

productive as the goods bought with it, he hedges his defence of usury
sufficiently so that his views are little different from many others. He does
maintain that the charge of interest on a loan per se is unjust, but ingeniously
points out that a lender charges for the utility of the money rather than for the
money itself. But Molinaeus attacks the 'cruel usuries' permitted by lucrum
cessans, and maintains with Calvin that interest may not be charged for loans
to the poor. (One wonders that if such a rule were enforced, who in the world
would ever lend to the poor, and would the poor then be better off by being
deprived of all credit?)
Indeed, it seems that Molinaeus' main contribution was to blacken unjustly
the name of poor Conrad Summenhart, a cruel injustice that would last for
four centuries. In an act obviously motivated by malice toward scholasticism,
Molinaeus took the great Summenhart's arguments against the usury ban and
twisted them to make the German theologian a particularly doltish advocate
of the prohibition. He took Summenhart's initial arguments for the prohibi-
tion, which he had stated in order to knock down, claimed that they were
Summenhart's own, and then plagiarized Summenhart's critique of these
arguments without acknowledgment. As a result of this shabby mendacity, as
Professor Noonan points out, since 'Du Moulin's writings have alone become
famous, Conrad [Summenhart] has appeared to posterity only as Du Moulin
caricatures him', i.e.. 'as a particularly obstinate and strangely stupid de-
fender of the usury prohibition'.10
The honour of putting the final boot to the usury prohibition belongs to the
seventeenth century classicist and Dutch Calvinist, Claude Saumaise (latinized
name, Claudius Salmasius) (1588-1653). In several works published in
Leyden, beginning with De usuris tiber in 1630 and continuing to 1645,
Salmasius finished off this embarrassing remnant of the mountainous errors
of the past. His forte was not so much in coining new theoretical arguments
as in finally willing to be consistent. In short, Salmasius trenchantly pointed
out that money-lending was a business like any other, and like other busi-
nesses was entitled to charge a market price. He did make the important
theoretical point, however, that, as in any other part of the market, if the
number of usurers multiplies, the price of money or interest will be driven
down by the competition. So that if one doesn't like high interest rates, the
more usurers the better!
Salmasius also had the courage to point out that there were no valid
arguments against usury, either by divine or natural law. The Jews only
prohibited usury against other Jews, and this was a political and tribal act
rather than an expression of a moral theory about an economic transaction.
As for Jesus, he taught nothing at all about civil polity or economic transac-
tions. This leaves the only ecclesiastical law against usury that of the pope,
and why should a Calvinist obey the pope? Salmasius also took some de-
Protestants and Catholics 145

served whacks at the evasions permeating the various scholastic justifica-

tions, or 'extrinsic titles', justifying interest. Let's face it, Salmasius in effect
asserted: what the canonists and scholastics 'took away with one hand, they
restored with the other'. The census is really usury, foreign exchange is really
usury, lucrum cessans is really usury. Usury all, and let them all be licit.
Furthermore, usury is always charged as compensation for something, in
essence the lack of use of money and the risk of loss in a loan.
Salmasius also had the courage to take the hardest case: professional
money-lending to the poor, and to justify that. Selling the use of money is a
business like any other. If it is licit to make money with things bought with
money, why not from money itself? As Noonan paraphrases Salmasius, 'The
seller of bread is not required to ask if he sells it to a poor man or a rich man.
Why should the moneylender have to make a distinction?' And: 'there is no
fraud or theft in charging the highest market price for other goods; why is it
wrong for the usurer to charge the heaviest usuries he can collect?' II
Empirically, Salmasius also analysed the case of public usurers in Amster-
dam (the great commercial and financial centre of the seventeenth century,
replacing Antwerp of the previous century), showing that the usual 16 per
cent charge on small loans to the poor is accounted for by: the costs of the
usurers borrowing their own money, of holding some money idle, of renting a
large house, of absorbing some losses on loans, of paying licence fees, hiring
employees, and paying an auctioneer. Deducting all these expenses, the aver-
age net interest rate of the money-lenders is only 8 per cent, barely enough to
keep them in business.
In concluding that usury is a business like any other, Salmasius, in his
typical witty and sparkling style, declared, 'I would rather be called a usurer,
than be a tailor'. Our examples of his style already demonstrate the aptness
of the great Austrian economist Bohm-Bawerk's conclusion about Salmasius:
that his works

are extremely effective pieces of writing, veritable gems of sparkling polemic.

The materials for them, it must be confessed, had in great part been provided by
his predecessors ... But the happy manner in which Salmasius employs these mate-
rials, and the many pithy sallies with which he enriches them, places his polemic
far above anything that had gone before. 12

As a result, Salmasius' essays had wide influence throughout the Nether-

lands and the rest of Europe. As Bohm-Bawerk declared, Salmasius' views
on usury were the high-water mark of interest theory, to remain so for over
100 years.
146 Economic thought before Adam Smith

5.5 Communist zealots: the Anabaptists

Sometimes Martin Luther must have felt that he had loosed the whirlwind,
even opened the gates of Hell. Shortly after Luther launched the Reforma-
tion, various Anabaptist sects appeared and spread throughout Germany. The
Anabaptists believed in predestination of the elect, but they also believed, in
contrast to Luther, that they knew infallibly who the elect were: i.e. them-
selves. The sign of that election was in an emotional, mystical conversion
process, that of being 'born again', baptized in the Holy Spirit. Such baptism
must be adult and not among infants; more to the point, it meant that only the
elect are to be sect members who obey the multifarious rules and creeds of
the Church. The idea of the sect, in contrast to Catholicism, Lutheranism or
Calvinism, was not comprehensive Church membership in the society. The
sect was to be distinctly separate, for the elect only.
Given that creed, there were two ways that Anabaptism could and did go.
Most Anabaptists, like the Mennonites or Amish, became virtual anarchists.
They tried to separate themselves as much as possible from a necessarily
sinful state and society, and engaged in non-violent resistance to the state's
The other route, taken by another wing of Anabaptists, was to try to seize
power in the state and to shape up the majority by extreme coercion: in short,
ultra-theocracy. As Monsignor Knox incisively points out, even when Calvin
established a theocracy in Geneva, it had to pale beside one which might be
established by a prophet enjoying continuous, new, mystical revelation.
As Knox points out, in his usual scintillating style:

... in Calvin's Geneva... and in the Puritan colonies of America, the left wing of
the Reformation signalized its ascendancy by enforcing the rigorism of its morals
with every available machinery of discipline; by excommunication, or, if that
failed, by secular punishment. Under such discipline sin became a crime, to be
punished by the elect with an intolerable self-righteousness ...
I have called this rigorist attitude a pale shadow of the theocratic principle,
because a full-blooded theocracy demands the presence of a divinely inspired
leader or leaders, to whom government belongs by right of mystical illumination.
The great Reformers were not, it must be insisted, men of this calibre; they were
pundits, men of the new learning... 13

And so one of the crucial differences between the Anabaptists and the
more conservative reformers was that the former claimed continuing mysti-
cal revelation to themselves, forcing men such as Luther and Calvin to fall
back on the Bible alone as the first as well as the last revelation.
The first leader of the ultra-theocrat wing of the Anabaptists was Thomas
Mtintzer (c.1489-1525). Born into comfort in Stolberg in Thuringia, Mtintzer
studied at the Universities of Leipzig and Frankfurt, and became highly
learned in the scriptures, the classics, theology, and in the writings of the
Protestants and Catholics 147

German mystics. Becoming a follower almost as soon as Luther launched the

Reformation in 1520, Miintzer was recommended by Luther for the pastorate
in the city of Zwickau. Zwickau was near the Bohemian border, and there the
restless Miintzer was converted by the weaver and adept Niklas Storch, who
had been in Bohemia, to the old Taborite doctrine that had flourished in
Bohemia a century earlier. This doctrine consisted essentially of a continuing
mystical revelation and the necessity for the elect to seize power and impose
a society of theocratic communism by brutal force of arms. Furthermore,
marriage was to be prohibited, and each man was to be able to have any
woman at his will.
The passive wing of Anabaptists were voluntary anarcho-communists, who
wished to live peacefully by themselves; but Miintzer adopted the Storch
vision of blood and coercion. Defecting very rapidly from Lutheranism,
Miintzer felt himself to be the coming prophet, and his teachings now began
to emphasize a war of blood and extermination to be waged by the elect
against the sinners. Miintzer claimed that the 'living Christ' had permanently
entered his own soul; endowed thereby with perfect insight into the divine
will, Miintzer asserted himself to be uniquely qualified to fulfil the divine
mission. He even spoke of himself as 'becoming God'. Abandoning the
world of learning, Miintzer was now ready for action.
In 1521, only a year after his arrival, the town council of Zwickau took
fright at these increasingly popular ravings and ordered Miintzer's expulsion
from the city. In protest, a large number of the populace, in particular the
weavers, led by Niklas Storch, rose in revolt, but the rising was put down. At
that point, Mtintzer hied himself to Prague, searching for Taborite remnants
in the capital of Bohemia. Speaking in peasant metaphors, he declared that
harvest-time is here, 'so God himself has hired me for his harvest. I have
sharpened my scythe, for my thoughts are most strongly fixed on the truth,
and my lips, hands, skin, hair, soul, body, life curse the unbelievers'. Mtintzer,
however, found no Taborite remnants; it did not help the prophet's popularity
that he knew no Czech, and had to preach with the aid of an interpreter. And
so he was duly expelled from Prague.
After wandering around central Germany in poverty for several years,
signing himself 'Christ's messenger', Mtintzer in 1523 gained a ministerial
position in the small Thuringian town of Allstedt. There he established a wide
reputation as a preacher employing the vernacular, and began to attract a
large following of uneducated miners, whom he formed into a revolutionary
organization called 'The League of the Elect' .
A turning point in Mtintzer's stormy career came a year later, when Duke
John, a prince of Saxony and a Lutheran, hearing alarming rumours about
him, came to little Allstedt and asked Miintzer to preach him a sermon. This
was Mtintzer's opportunity, and he seized it. He laid it on the line: he called
148 Economic thought before Adam Smith

upon the Saxon princes to make their choice and take their stand, either as
servants of God or of the Devil. If the Saxon princes are to take their stand
with God, then they 'must lay on with the sword'. 'Don't let them live any
longer,' counselled our prophet, 'the evil-doers who turn us away from God.
For a godless man has no right to live if he hinders the godly'. Miintzer's
definition of the 'godless', of course, was all-inclusive. 'The sword is neces-
sary to exterminate' priests, monks and godless rulers. But, Miintzer warned,
if the princes of Saxony fail in this task, if they falter, 'the sword shall be
taken from them .. .If they resist, let them be slaughtered without mercy ... '.
Mtintzer then returned to his favourite harvest-time analogy: 'At the harvest-
time, one must pluck the weeds out of God's vineyard ... For the ungodly have
no right to live, save what the Elect chooses to allow them .... ' In this way the
millennium, the thousand-year Kingdom of God on earth, would be ushered
in. But one key requisite is necessary for the princes to perform that task
successfully; they must have at their elbow a priest/prophet (guess who!) to
inspire and guide their efforts.
Oddly enough for an era when no First Amendment restrained rulers from
dealing sternly with heresy, Duke John seemed not to care about Mtintzer's
frenetic ultimatum. Even after Mtintzer proceeded to preach a sermon pro-
claiming the imminent overthrow of all tyrants and the beginning of the
messianic kingdom, the duke did nothing. Finally, under the insistent prod-
ding of Luther that Mtintzer was becoming dangerous, Duke John told the
prophet to refrain from any provocative preaching until his case was decided
by his brother, the elector.
This mild reaction by the Saxon princes, however, was enough to set
Thomas Mtintzer on his final revolutionary road. The princes had proved
themselves untrustworthy; the mass of the poor were now to make the revo-
lution. The poor were the elect, and would establish a rule of compulsory
egalitarian communism, a world where all things would be owned in com-
mon by all, where everyone would be equal in everything and each person
would receive according to his need. But not yet. For even the poor must first
be broken of worldly desires and frivolous enjoyments, and must recognize
the leadership of a new 'servant of God' who 'must stand forth in the spirit of
Elijah ... and set things in motion'. (Again, guess who!)
Seeing Saxony as inhospitable, Mtintzer climbed over the town wall of
Allstedt and moved in 1524 to the Thuringian city of Muhlhausen. An expert
in fishing in troubled waters, Miintzer found a friendly home in Muhlhausen,
which had been in a state of political turmoil for over a year. Preaching the
impending extermination of the ungodly, Miintzer paraded around the town
at the head of an armed band, carrying in front of him a red crucifix and a
naked sword. Expelled from Muhlhausen after a revolt by his allies was
suppressed, Mtintzer went to Nuremberg, which in turn expelled him after he
Protestants and Catholics 149

published some revolutionary pamphlets. After wandering through south-

western Germany, Miintzer was invited back to Muhlhausen in February
1525, where a revolutionary group had taken over.
Thomas Miintzer and his allies proceeded to impose a communist regime
on the city of Muhlhausen. The monasteries were seized, and all property
was decreed to be in common, and the consequence, as a contemporary
observer noted, was that 'he so affected the folk that no one wanted to work' .
The result was that the theory of communism and love quickly became in
practice an alibi for systemic theft:

... when anyone needed food or clothing he went to a rich man and demanded it of
him in Christ's name, for Christ had commanded that all should share with the
needy. And what was not given freely was taken by force. Many acted
thus ... Thomas [Mtintzer] instituted this brigandage and multiplied it every day. 14

At that point, the great Peasants' War erupted throughout Germany, a

rebellion launched by the peasantry in favour of their local autonomy and in
opposition to the new centralizing, high-tax, absolutist rule of the German
princes. Throughout Germany, the princes crushed the feebly armed peas-
antry with great brutality, massacring about 100 000 peasants in the process.
In Thuringia, the army of the princes confronted the peasants on 15 May with
a great deal of artillery and 2 000 cavalry, luxuries denied to the peasantry.
The landgrave of Hesse, commander of the princes' army, offered amnesty to
the peasants if they would hand over Miintzer and his immediate followers.
The peasants were strongly tempted, but Miintzer, holding aloft his naked
sword, gave his last flaming speech, declaring that God had personally prom-
ised him victory; that he would catch all the enemy cannon-balls in the
sleeves of his cloak; that God would protect them all. Just at the strategic
moment of Miintzer's speech, a rainbow appeared in the heavens, and Miintzer
had previously adopted the rainbow as the symbol of his movement. To the
credulous and confused peasantry, this seemed a veritable sign from Heaven.
Unfortunately, the sign didn't work, and the princes' army crushed the peas-
ants, killing 5 000 while losing only half a dozen men. Miintzer himself fled
and hid, but was captured a few days later, tortured into confession, and then
Thomas Miintzer and his signs may have been defeated, and his body may
have mouldered in the grave, but his soul kept marching on. Not only was his
spirit kept alive by followers in his own day, but also by Marxist historians
from Engels to the present day, who saw in this deluded mystic an epitome of
social revolution and the class struggle, and a forerunner of the chiliastic
prophesies of the 'comlnunist stage' of the supposedly inevitable Marxian
150 Economic thought before Adam Smith

The Muntzerian cause was soon picked up by a former disciple, the book-
binder Hans Hut. Hut claimed to be a prophet sent by God to announce that at
Whitsuntide, 1528, Christ would return to earth and give the power to en-
force justice to Hut and his following of rebaptized saints. The saints would
then 'take up double-edged swords' and wreak God's vengeance on priests,
pastors, kings and nobles. Hut and his followers would then 'establish the
rule of Hans Hut on earth', with Muhlhausen as the favoured capital. Christ
was then to establish a millennium marked by communism and free love. Hut
was captured in 1527 (before Jesus had had a chance to return), imprisoned at
Augsburg, and killed trying to escape. For a year or two, Huttian followers
kept emerging, at Augsburg, Nuremberg, and Esslingen, in southern Ger-
many, threatening to set up their communist Kingdom of God by force of
arms. But by 1530 they were smashed and suppressed by the alarmed au-
thorities. Muntzerian-type Anabaptism was now to move to north-western

5.6 Totalitarian communism in Munster

North-western Germany in that era was dotted by a number of small ecclesi-
astical states, each run by a prince-bishop. The state was run by aristocratic
clerics, who elected one of their own as bishop. Generally, these bishops
were secular lords who were not ordained. By bargaining over taxes, the
capital city of each of these states had usually wrested for itself a degree of
autonomy. The clergy, which constituted the ruling elite of the state, ex-
empted themselves from taxation while imposing very heavy taxes on the
rest of the populace. Generally, the capital cities came to be run by their own
power elite, an oligarchy of guilds, which used government power to cartellize
their various professions and occupations.
The largest of these ecclesiastical states in north-west Germany was the
bishopric of Munster, and its capital city of Munster, a town of some 10 000
people, was run by the town guilds. The Munster guilds were particularly
exercised by the economic competition of the monks, who were not forced to
obey guild restrictions and regulations.
During the Peasants' War, the capital cities of several of these states,
including Munster, took the opportunity to rise in revolt, and the bishop of
Munster was forced to make numerous concessions. With the crushing of the
rebellion, however, the bishop took back the concessions, and re-established
the old regime. By 1532, however, the guilds, supported by the people, were
able to fight back and take over the town, soon forcing the bishop to recog-
nize Munster officially as a Lutheran city.
It was not destined to remain so for long, however. From all over the north-
west, hordes of Anabaptist enthusiasts flooded into Munster, seeking the
onset of the New Jerusalem. From the northern Netherlands came hundreds
Protestants and Catholics J5 J

of Melchiorites, followers of the itinerant visionary Melchior Hoffmann.

Hoffmann, an uneducated furrier's apprentice from Swabia in southern Ger-
many, had for years wandered through Europe preaching the imminence of
the Second Coming, which he had concluded from his researches would
occur in 1533, the fifteenth centenary of the death of Jesus. Melchiorism had
flourished in the northern Netherlands, and many adepts now poured into
Munster, rapidly converting the poorer classes of the town.
Meanwhile, the Anabaptist cause in Munster received a shot in the arm,
when the eloquent and popular young minister Bernt Rothmann, a highly
educated son of a town blacksmith, converted to Anabaptism. Originally a
Catholic priest, Rothmann had become a friend of Luther and the head of the
Lutheran movement in Munster. Converted to Anabaptism, Rothmann lent
his eloquent preaching to the cause of communism as it had supposedly
existed in the primitive Christian Church, holding everything in common
with no Mine and Thine and giving to each according to his 'need'. In
response to Rothmann's reputation, thousands flocked to Munster, hundreds
of the poor, the rootless, those hopelessly in debt, and 'people who, having
run through the fortunes of their parents, were earning nothing by their own
industry ... ' . People, in general, who were attracted by the idea of 'plundering
and robbing the clergy and the richer burghers'. The horrified burghers tried
to drive out Rothmann and the Anabaptist preachers, but to no avail.
In 1533, Melchior Hoffmann, sure that the Second Coming would happen
any day, returned to Strasbourg, where he had had great success, calling
himself the Prophet Elias. He was promptly clapped into jail, and remained
there until his death a decade later.
Hoffmann, for all the similarities with the others, was a peaceful man who
counselled non-violence to his followers; after all, if Jesus were imminently
due to return, why commit against unbelievers? Hoffmann's imprisonment,
and of course the fact that 1533 came and went without a Second Coming,
discredited Melchior, and so his Munster followers turned to far more vio-
lent, post-millennialist prophets who believed that they would have to estab-
lish the Kingdom by fire and sword.
The new leader of the coercive Anabaptists was a Dutch baker from Haarlem,
one Jan Matthys (Matthyszoon). Reviving the spirit of Thomas Muntzer, Matthys
sent out missionaries or 'apostles' from Haarlem to rebaptize everyone they
could, and to appoint 'bishops' with the power to baptize. When the new
apostles reached Munster in early 1534, they were greeted, as we might expect,
with enormous enthusiasm. Caught up in the frenzy, even Rothmann was
rebaptized once again, followed by many ex-nuns and a large part of the
population. Within a week the apostles had rebaptized 1 400 people.
Another apostle soon arrived, a young man of 25 who had been converted
and baptized by Matthys only a couple of months earlier. This was Jan
J52 Economic thought before Adam Smith

Bockelson (Bockelszoon, Beukelsz), who was soon to become known in

song and story as Johann of Leyden. Though handsome and eloquent,
Bockelson was a troubled soul, having been born the illegitimate son of the
mayor of a Dutch village by a woman serf from Westphalia. Bockelson began
life as an apprentice tailor, married a rich widow, but then went bankrupt
when he set himself up as a self-employed merchant.
In February 1534, Bockelson won the support of the wealthy cloth mer-
chant Bernt Knipperdollinck, the powerful leader of the Munster guilds, and
shrewdly married Knipperdollinck's daughter. On 8 February, son-in-law and
father-in-law ran wildly through the streets together, calling upon everyone
to repent. After much frenzy, mass writhing on the ground, and the seeing of
apocalyptic visions, the Anabaptists rose up and seized the town hall, win-
ning legal recognition for their movement.
In response to this successful uprising, many wealthy Lutherans left town,
and the Anabaptists, feeling exuberant, sent messengers to surrounding areas
summoning everyone to come to Munster. The rest of the world, they pro-
claimed, would be destroyed in a month or two; only Munster would be
saved, to become the New Jerusalem. Thousands poured in from as far away
as Flanders and Frisia in the northern Netherlands. As a result, the Anabaptists
soon won a majority on the town council, and this success was followed three
days later, on 24 February, by an orgy of looting of books, statues and
paintings from the churches and throughout the town. Soon Jan Matthys
himself arrived, a tall, gaunt man with a long black beard. Matthys, aided by
Bockelson, quickly became the virtual dictator of the town. The coercive
Anabaptists had at last seized a city. The Great Communist Experiment could
now begin.
The first mighty programme of this rigid theocracy was, of course, to
purge the New Jerusalem of the unclean and the ungodly, as a prelude to their
ultimate extermination throughout the world. Matthys called therefore for the
execution of all remaining Catholics ~nd Lutherans, but Knipperdollinck's
cooler head prevailed, since he warned Matthys that slaughtering all other
Christians than themselves might cause the rest of the world to become edgy,
and they might all come and crush the New Jerusalem in its cradle. It was
therefore decided to do the next best thing, and on 27 February the Catholic
and Lutherans were driven out of the city, in the midst of a horrendous
snowstorm. In a deed prefiguring communist Cambodia, all non-Anabaptists,
including old people, invalids, babies and pregnant women were driven into
the snowstorm, and all were forced to leave behind all their money, property,
food and clothing. The remaining Lutherans and Catholics were compulso-
rily rebaptized, and all refusing this ministration were put to death.
The expulsion of all Lutherans and Catholics was enough for the bishop,
who began a long military siege of the town the next day, on 28 February.
Protestants and Catholics 153

With every person drafted for siege work, Jan Matthys launched his totalitar-
ian communist social revolution.
The first step was to confiscate the property of the expelled. All their
worldly goods were placed in central depots, and the poor were encouraged
to take 'according to their needs', the 'needs' to be interpreted by seven
appointed 'deacons' chosen by Matthys. When a blacksmith protested at
these measures imposed by Dutch foreigners, Matthys arrested the coura-
geous smithy. Summoning the entire population of the town, Matthys person-
ally stabbed, shot, and killed the 'godless' blacksmith, as well as throwing
into prison several eminent citizens who had protested against his treatment.
The crowd was warned to profit by this public execution, and they obediently
sang a hymn in honour of the killing.
A key part of the Anabaptist reign of terror in Munster was now unveiled.
Unerringly, just as in the case of the Cambodian communists four-and-a-half
centuries later, the new ruling elite realized that the abolition of the private
ownership of money would reduce the population to total slavish dependence
on the men of power. And so Matthys, Rothmann and others launched a
propaganda campaign that it was unchristian to own money privately; that all
money should be held in 'common', which in practice meant that all money
whatsoever must be handed over to Matthys and his ruling clique. Several
Anabaptists who kept or hid their money were arrested and then terrorized
into crawling to Matthys on their·knees, begging forgiveness and beseeching
him to intercede with God on their behalf. Matthys then graciously 'forgave'
the sinners.
After two months of severe and unrelenting pressure, a combination of
propaganda about the Christianity of abolishing private money, and threats and
terror against those who failed to surrender, the private ownership of money
was effectively abolished in Miinster. The government seized all the money
and used it to buy or hire goods from the outside world. Wages were doled out
in kind by the only remaining employer: the theocratic Anabaptist state.
Food was confiscated from private homes, and rationed according to the
will of the government deacons. Also, to accommodate the immigrants, all
private homes were effectively communized, with everyone permitted to
quarter themselves anywhere; it was now illegal to close, let alone lock,
doors. Communal dining-halls were established, where people ate together to
readings from the Old Testament.
This compulsory communism and reign of terror was carried out in the
name of community and Christian 'love'. All this communization was con-
sidered the first giant steps toward total egalitarian communism, where, as
Rothmann put it, 'all things were to be in common, there was to be no private
property and nobody was to do any more work, but simply trust in God'. The
workless part, of course, somehow never arrived.
154 Economic thought before Adam Smith

A pamphlet sent in October 1534 to other Anabaptist communities hailed

the new order of Christian love through terror:

For not only have we put all our belongings into a common pool under the care of
deacons, and live from it according to our need; we praise God through Christ
with one heart and mind and are eager to help one another with every kind of
And accordingly, everything which has served the purposes of selfseeking and
private property, such as buying and selling, working for money, taking interest
and practising usury ... or eating and drinking the sweat of the poor. .. and indeed
everything which offends against love - all such things are abolished amongst us
by the power of love and community.

With high consistency, the Anabaptists of Munster made no pretence about

preserving intellectual freedom while communizing all material property. For
the Anabaptists boasted of their lack of education, and claimed that it was the
unlearned and the unwashed who would be the elect of the world. The
Anabaptist mob took particular delight in burning all the books and manu-
scripts in the cathedral library, and finally, in mid-March 1534, Matthys
outlawed all books except the Good Book - the Bible. To symbolize a total
break with the sinful past, all privately and publicly owned books were
thrown upon a great communal bonfire. All this ensured, of course, that the
only theology or interpretation of the scriptures open to the Munsterites was
that of Matthys and the other Anabaptist preachers.
At the end of March, however, Matthys's swollen hubris laid him low.
Convinced at Eastertime that God had ordered him and a few of the faithful
to lift the bishop's siege and liberate the town, Matthys and a few others
rushed out of the gates at the besieging army, and were literally hacked to
pieces. In an age when the idea of full religious liberty was virtually un-
known, one can imagine that any Anabaptists whom the more orthodox
Christians might get hold of would not earn a very kindly reward.
The death of Matthys left Munster in the hands of young Bockelson. And if
Matthys had chastised the people of Munster with whips, Bockelson would
chastise them with scorpions. Bockelson wasted little time in mourning his
mentor. He preached to the faithful: 'God will give you another Prophet who
will be more powerful'. How could this young enthusiast top his master?
Early in May, Bockelson caught the attention of the town by running naked
through the streets in a frenzy, falling then into a silent three-day ecstasy.
When he rose again, he announced to the entire populace a new dispensation
that God had revealed to him. With God at his elbow, Bockelson abolished
the old functioning town offices of council and burgomasters, and installed a
new ruling council of 12 elders, with himself, of course, as the eldest of the
elders. The elders were now given total authority over the life and death, the
Protestants and Catholics 155

property and the spirit, of every inhabitant of MUnster. A strict system of

forced labour was imposed, with all artisans not drafted into the military now
public employees, working for the community for no monetary reward. This
meant, of course, that the guilds were now abolished.
The totalitarianism in MUnster was now complete. Death was now the
punishment for virtually every independent act, good or bad. Capital punish-
ment was decreed for the high crimes of: murder, theft, lying, avarice, and
quarrelling(!). Also death was decreed for every conceivable kind of insubor-
dination: the young against their parents, wives against their husbands and, of
course, anyone at all against the chosen representatives of God on earth, the
totalitarian government of Munster. Bernt Knipperdollinck was appointed
high executioner to enforce the decrees.
The only aspect of life previously left untouched was sex, and this now
came under the hammer of Bockelson's total despotism. The only sexual
relation permitted was marriage between two Anabaptists. Sex in any other
form, including marriage with one of the 'godless', was a capital crime. But
soon Bockelson went beyond this rather old-fashioned credo, and decided to
establish compulsory polygamy in MUnster. Since many of the expellees had
left their wives and daughters behind, Munster now had three times as many
marriageable women as men, so that polygamy had become technologically
feasible. Bockelson converted the other rather startled preachers by citing
polygamy among the patriarchs of Israel, as well as by threatening dissenters
with death.
Compulsory polygamy was a bit too much for many of the Munsterites,
who launched a rebellion in protest. The rebellion, however, was quickly
crushed and most of the rebels put to death. Execution was also the fate of
any further dissenters. And so by August 1534, polygamy was coercively
established in Munster. As one might expect, young Bockelson took an
instant liking to the new regime, and before long he had a harem of IS wives,
including Divara, the beautiful young widow of Jan Matthys. The rest of the
male population also began to take to the new decree as ducks to water. Many
of the women did not take as kindly to the new dispensation, and so the
elders passed a law ordering compulsory marriage for every women under
(and presumably also over) a certain age, which usually meant being a
compulsory third or fourth wife.
Moreover, since marriage among the godless was not only invalid but also
illegal, the wives of the expellees now became fair game, and were forced to
'marry' good Anabaptists. Refusal to comply with the new law was punish-
able, of course, by death, and a number of women were actually executed as
a result. Those 'old' wives who resented the new wives coming into their
household were also suppressed, and their quarrelling was made a capital
crime. Many women were executed for quarrelling.
156 Economic thought before Adam Smith

But the long arm of the state could reach only just so far and, in their first
internal setback, Bockelson and his men had to relent, and permit divorce.
Indeed, the ceremony of marriage was now outlawed totally, and divorce
made very easy. As a result, Munster now fell under a regime of what
amounted to compulsory free love. And so, within the space of only a few
months, a rigid puritanism had been transmuted into a regime of compulsory
Meanwhile, Bockelson proved to be an excellent organizer of a besieged
city. Compulsory labour, military and civilian, was strictly enforced. The
bishop's army consisted of poorly and irregularly paid mercenaries, and
Bockelson was able to induce many of them to desert by offering them
regular pay (pay for money, that is, in contrast to Bockelson's rigid internal
moneyless communism). Drunken ex-mercenaries were, however, shot im-
mediately. When the bishop fired pamphlets into the town offering a general
amnesty in return for surrender, Bockelson made reading such pamphlets a
crime punishable by - of course - death.
At the end of August 1534, the bishop's armies were in disarray and the
siege temporarily lifted. Jan Bockelson seized this opportunity to carry his
'egalitarian' communist revolution one step further: he had himself named
king and Messiah of the Last Days.
Proclaiming himself king might have appeared tacky and perhaps even
illegitimate. And so Bockelson had one Dusentschur, a goldsmith from a
nearby town and a self-proclaimed prophet, do the job for him. At the begin-
ning of September, Dusentschur announced to one and all a new revelation:
Jan Bockelson was to be king of the whole world, the heir of King David, to
keep that Throne until God himself reclaimed his Kingdom. Un surprisingly,
Bockelson confirmed that he himself had had the very same revelation.
Dusentschur then presented a sword of justice to Bockelson, anointed him,
and proclaimed him king of the world. Bockelson, of course, was momentar-
ily modest; he prostrated himself and asked guidance from God. But he made
sure to get that guidance swiftly. And it turned out, mirabile dictu, that
Dusentschur was right. Bockelson proclaimed to the crowd that God had now
given him 'power over all nations of the earth'; anyone who might dare to
resist the will of God 'shall without delay be put to death with the sword'.
And so, despite a few mumbled protests, Jan Bockelson was declared king
of the world and Messiah, and the Anabaptist preachers of Munster explained
to their bemused flock that Bockelson was indeed the Messiah as foretold in
the Old Testament. Bockelson was rightfully ruler of the entire world, both
temporal and spiritual.
It often happens with 'egalitarians' that a hole, a special escape hatch from
the drab uniformity of life, is created - for themselves. And so it was with
King Bockelson. It was, after all, important to emphasize in every way the
Protestants and Catholics J57

importance of the Messiah's advent. And so Bockelson wore the finest robes,
metals and jewellery; he appointed courtiers and gentlemen-at-arms, who
also appeared in splendid finery. King Bockelson's chief wife, Divara, was
proclaimed queen of the world, and she too was dressed in great finery and
had a suite of courtiers and followers. This luxurious court of some two
hundred people was housed in fine mansions requisitioned for the occasion.
A throne draped with a cloth of gold was established in the public square, and
King Bockelson would hold court there, wearing a crown and carrying a
sceptre. A royal bodyguard protected the entire procession. All Bockelson's
loyal aides were suitably rewarded with high status and finery: Knipperdollinck
was the chief minister, and Rothmann royal orator.
If communism is the perfect society, somebody must be able to enjoy its
fruits; and who better but the Messiah and his courtiers? Though private
property in money was abolished, the confiscated gold and silver was now
minted into ornamental coins for the glory of the new king. All horses were
confiscated to build up the king's armed squadron. Also, names in Munster
were transformed; all the streets were renamed; Sundays and feastdays were
abolished; and all new-born children were named personally by the king in
accordance with a special pattern.
In a starving slave society such as communist Miinster, not all citizens
could live in the luxury enjoyed by the king and his court; indeed, the new
ruling class was now imposing a rigid class oligarchy seldom seen before. So
that the king and his nobles might live in high luxury, rigorous austerity was
imposed on everyone else in Munster. The subject population had already
been robbed of their houses and much of their food; now all superfluous
luxury among the masses was outlawed. Clothing and bedding were severely
rationed, and all 'surplus' turned over to King Bockelson under pain of death.
Every house was searched thoroughly and 83 wagonloads of 'surplus' cloth-
ing collected.
It is not surprising that the deluded masses of Munster began to grumble at
being forced to live in abject poverty while the king and his courtiers lived in
extreme luxury on the proceeds of their confiscated belongings. And so
Bockelson had to beam them some propaganda to explain the new system.
The explanation was this: it was all right for Bockelson to live in pomp and
luxury because he was already completely dead to the world and the flesh.
Since he was dead to the world, in a deep sense his luxury didn't count. In the
style of every guru who has ever lived in luxury among his credulous follow-
ers, he explained that for him material objects had no value. How such 'logic'
can ever fool anyone passes understanding. More important, Bockelson as-
sured his subjects that he and his court were only the advance guard of the
new order; soon, they too would be living in the same millennial luxury.
Under their new order, the people of Munster would forge outward, armed
J58 Economic thought before Adam Smith

with God's will, and conquer the entire world, exterminating the unrighteous,
after which Jesus would return and they would all live in luxury and perfec-
tion. Equal communism with great luxury for all would then be achieved.
Greater dissent meant, of course, greater terror, and King Bockelson's
reign of 'love' intensified its intimidation and slaughter. As soon as he pro-
claimed the monarchy, the prophet Dusentschur announced a new divine
revelation: all who persisted in disagreeing with or disobeying King Bockelson
would be put to death, and their very memory blotted out. They would be
extirpated forever. Some of the main victims to be executed were women:
women who were killed for denying their husbands their marital rights, for
insulting a preacher, or for daring to practise bigamy - polygamy, of course,
being solely a male privilege.
Despite his continual preaching about marching forth to conquer the world,
King Bockelson was not crazy enough to attempt that feat, especially since
the bishop's army was again besieging the town. Instead, he shrewdly used
much of the expropriated gold and silver to send out apostles and pamphlets
to surrounding areas of Europe, attempting to rouse the masses for Anabaptist
revolution. The propaganda had considerable effect, and serious mass risings
occurred throughout Holland and north-western Germany during January
1535. A thousand armed Anabaptists gathered under the leadership of some-
one who called himself Christ, son of God; and serious Anabaptist rebellions
took place in west Frisia, in the town of Minden, and even in the great city of
Amsterdam, where the rebels managed to capture the town hall. All these
risings were eventually suppressed, with the considerable help of betrayal to
the various authorities of the names of the rebels and of the location of their
munition dumps.
The princes of north-western Europe by this time had had enough; and all
the states of the Holy Roman Empire agreed to supply troops to crush the
monstrous and hellish regime at Munster. For the first time, in January 1535,
Munster was totally and successfully blockaded and cut off from the outside
world. The Establishment then proceeded to starve the population of Munster
into submission. Food shortages appeared immediately, and the crisis was
met with characteristic vigour: all remaining food was confiscated, and all
horses killed, for the benefit of feeding the king, his royal court and his
armed guards. At all times the king and his court ate and drank well, while
famine and devastation raged throughout the town of Munster, and the masses
ate literally everything, even inedible, they could lay their hands on.
King Bockelson kept his rule by beaming continual propaganda and prom-
ises to the starving masses. God would definitely save them by Easter, or else
he would have himself burnt in the public square. When Easter came and
went, Bockelson craftily explained that he had meant only 'spiritual' salva-
tion. He promised that God would change cobblestones to bread, and of
Protestants and Catholics 159

course that did not come to pass either. Finally, Bockelson, long fascinated
with the theatre, ordered his starving subjects to engage in three days of
dancing and athletics. Dramatic performances were held, as well as a Black
Mass. Starvation, however, was now becoming all-pervasive.
The poor hapless people of MUnster were now doomed totally. The bishop
kept firing leaflets into the town promising a general amnesty if the people
would only revolt and depose King Bockelson and his court and hand them
over. To guard against such a threat, Bockelson stepped up his reign of terror
still further. In early May, he divided the town into 12 sections, and placed a
'duke' over each one with an armed force of 24 men. The dukes were
foreigners like himself; as Dutch immigrants they were likely to be loyal to
Bockelson. Each duke was strictly forbidden to leave his section, and the
dukes, in turn, prohibited any meetings whatsoever of even a few people. No
one was allowed to leave town, and any caught plotting to leave, helping
anyone else to leave, or criticizing the king, was instantly beheaded, usually
by King Bockelson himself. By mid-June such deeds were occurring daily,
with the body often quartered and nailed up as a warning to the masses.
Bockelson would undoubtedly have let the entire population starve to
death rather than surrender; but two escapees betrayed weak spots in the
town's defence, and on the night of 24 June 1535, the nightmare New Jerusa-
lem at last came to a bloody end. The last several hundred Anabaptist fighters
surrendered under an amnesty and were promptly massacred, and Queen
Divara was beheaded. As for ex-King Bockelson, he was led about on a
chain, and the following January, along with Knipperdollinck, was publicly
tortured to death, and their bodies suspended in cages from a church tower.
The old Establishment of Munster was duly restored and the city became
Catholic once more. The stars were once again in their courses, and the
events of 1534-35 understandably led to an abiding distrust of mysticism and
enthusiast movements throughout Protestant Europe.

5.7 The roots of messianic communism

Anabaptist communism did not spring out of thin air at the advent of the
Reformation. Its roots can be traced back to an extraordinarily influential late
twelfth century Italian mystic, Joachim of Fiore (1145-1202). Joachim was
an abbot and hermit in Calabria, in southern Italy. It was Joachim who
launched the idea that hidden in the Bible for those who had the wit to see
were prophecies foretelling world history. Concentrating on the murky Book
of Revelation, Joachim decreed that history was destined to move through
three successive ages, each of them ruled by one of the members of the Holy
Trinity. The first age, the age of the Old Testament, was the era of the Father
or the Law, the age of fear and servitude; the second age, the era of the Son,
was the age of the New Testament, the era of faith and submission. Mystics
J60 Economic thought before Adam Smith

generally think in threes; and Joachim was moved to herald the coming of the
third and final age, the age of the Holy Spirit, the era of perfect joy, love and
freedom, and the end of human history. It would be the age of the end of
property, because everyone would live in voluntary poverty; and everyone
could easily do so, because there would be no work, since people would be
totally liberated from their physical bodies. Possessing only spiritual bodies,
there would be no need to eat food or do much else either. The world would
be, in the paraphrase of Norman Cohn, 'one vast monastery, in which all men
would be contemplative monks rapt continuously in mystical ecstasy until
the day of the Last Judgment'. Joachim's vision already resonates with the
later Marxian dialectic of the three allegedly inevitable stages of history:
primitive communism, class society, and then finally the realm of perfect
freedom, total communism and the withering away of the division of labour,
and the end of human history.
As with so many chiliasts, Joachim was sure of the date of the advent of
the final age and, typically, it was coming soon - in his view, sometime in the
first half of the next, the thirteenth century.
The Joachite bizarreries quickly exerted enormous influence, particularly
in Italy, in Germany, and in the rigourist wing of the new Franciscan Order.
A new ingredient to this witches' brew was added a little later by a
learned professor of theology at the great University of Paris at the end of
the twelfth century. Once a great favourite of the French royal court,
Amalric's odd doctrines were condemned by the pope and, after a forced
public recantation, Amalric died shortly thereafter, in 1206 or 1207. His
doctrines were then picked up by a small, secret group of erudite clerical
disciples, the Amaurians, most of whom had been students in theology at
Paris. Centred at the important commercial cloth-making town of Troyes,
in Champagne, the Amaurian missionaries influenced many people and
distributed popular works of theology in the vernacular. Their leader was
the priest William Aurifex, who was either a goldsmith or an alchemist
attempting to transform base metals into gold. Subjected to espionage by
the bishop of Paris, the 14 Amaurians were all rounded up and either
imprisoned for life or burnt at the stake, depending on whether they re-
canted their heresies. Most of them refused to recant.
The Amaurians, like Joachim, propounded the three ages of human history,
but they added some spice to it; each age apparently enjoyed its own incarna-
tion. For the Old Testament, it was Abraham and perhaps some other patri-
archs; for the New Testament, the incarnation was of course Jesus; and now,
for the dawning age of the Holy Spirit, the incarnation would now emerge in
human beings themselves. As might be expected, the Amaurians considered
themselves the new incarnation; in other words, they proclaimed themselves
as living gods, the embodiment of the Holy Spirit. Not that they would
Protestants and Catholics 161

always remain a divine elite among men; on the contrary, they were destined
to lead mankind to its universal incarnation.
The congeries of groups throughout northern Europe in the fourteenth
century known as the Brethren of the Free Spirit added another important
ingredient to the stew; the dialectic of 'reabsorption into God' derived from
the third century Platonist philosopher, Plotinus. Plotinus had had his own
three stages: the original unity with God, the human-history stage of degrada-
tion and separation or alienation from God, and the final 'return' or
'reabsorption' as all human beings are submerged into the One and history is
finished. The Brethren of the Free Spirit added a new elitist twist: while the
reabsorption of every man must await the end of history, and the 'crude in
spirit' must meanwhile meet their individual deaths, there was a glorious
minority, the 'subtle in spirit', who could and did become reabsorbed and
therefore living gods during their lifetime. This minority, of course, were the
Brethren themselves who, by virtue of years of training, self-torture and
visions had become perfect gods, more perfect and more godlike than even
Christ himself. Once this stage of mystical union was reached, furthermore, it
was permanent and eternal. These new gods often proclaimed themselves
greater than God himself. Thus a group of female Free Spirits at Schweidnitz
claimed to be able to dominate the Holy Trinity such that they could 'ride it
as in a saddle'; and one of these women declared that 'when God created all
things I created all things with him .. .1 am more than God'. Man himself,
therefore, or at least a gifted minority of men, could lift themselves up to
divine status by their own efforts far earlier than their fellows.
Being living gods on earth brought many good things in its wake. In the
first place, it led directly to an extreme form of the antinomian heresy: if
people are gods, then it is impossible for them to sin. Whatever they do is
necessarily moral and perfect. That means that any act ordinarily considered
as sin, from adultery to murder, becomes perfectly legitimate when per-
formed by the living gods. Indeed, the Free Spirits, like other antinomians,
were tempted to demonstrate and flaunt their freedom from sin by performing
all manner of sins imaginable.
But there was also a catch. Among the Free Spirit cultists, only a minority
of leading adepts were 'living gods'; for the rank-and-file cultists, striving to
become gods, there was one sin alone which they must not commit: disobedi-
ence to their master. Each disciple was bound by an oath of absolute obedi-
ence to a particular living god. Take for example Nicholas of Basle, a leading
Free Spirit guru whose cult stretched most of the length of the Rhine. Claim-
ing to be the new Christ, Nicholas held that everyone's sole path to salvation
is making an act of absolute and total submission to Nicholas himself. In
return for this total fealty, Nicholas granted his followers freedom from all
162 Economic thought before Adam Smith

As for the rest of mankind outside the cults, they were simply unredeemed
and unregenerate beings who existed only to be used and exploited by the
elect. This attitude of total rule went hand in hand with the social doctrine
many Free Spirit cults adopted in the fourteenth century: a communistic
assault on the institution of private property. In essence, however, that philo-
sophic communism was a thinly camouflaged cover for their - the Free
Spirits' - self-proclaimed right to commit theft at will. The Free Spirit adept,
in short, regarded all property of the non-elect as rightfully his own. As the
bishop of Strasbourg summed it up in 1317: 'They believe that all things are
common, whence they conclude that theft is lawful for them'. Or as the Free
Spirit adept from Erfurt, Johann Hartmann, put it: 'The truly free man is king
and lord of all creatures. All things belong to him, and he has the right to use
whatever pleases him. If anyone tries to prevent him, the free man may kill
him and take his goods'. As one of the favourite sayings of the Brethren of
the Free Spirit put it: 'Whatever the eye sees and covets, let the hand grasp
it' .
The final ingredient for the revolutionary communist Miintzer-Miinster
stew came with the extreme Taborites of the early fifteenth century. All
Taborites constituted the radical wing of the Hussite movement, a pre-Protes-
tant revolutionary movement that blended struggles of religion (anti-Catho-
lic), nationality (Czech vs upper-class and upper-clergy German), and class
(artisans cartellized in guilds trying to take political power from the patri-
The new ingredient added by the extreme wing of the Taborites was the
duty to exterminate. For the Last Days are coming, and the elect must go out
and stamp out sin by exterminating all sinners, which means - at the very
least - all non-Taborites. For all sinners are enemies of Christ, and 'accursed
be the man who withholds his sword from shedding the blood of the enemies
of Christ. Every believer must wash his hands in that blood'. Having that
mind-set, the extreme Taborites were not going to stop at intellectual destruc-
tion. When sacking churches and monasteries, the Taborites took particular
delight in destroying libraries and burning books. For 'all belongings must be
taken away from God's enemies and burned or otherwise destroyed'. Be-
sides, the elect have no need for books. When the Kingdom of God on earth
arrived, there would no longer be 'need for anyone to teach another. There
would be no need for books or scriptures, and all worldly wisdom will
perish'. And all people too, one suspects.
Moreover, elaborating anew the theme of a 'return' to a lost golden age,
the ultra-Taborites proposed to return to the allegedly early Czech condition
of communism: a society with no private property. In order to achieve this
classless society, the cities in particular, those centres of luxury and avarice,
and especially the merchants and the landlords, must be exterminated. After
Protestants and Catholics 163

the elect have established their communist Kingdom of God in Bohemia by

revolutionary violence, their task would be to forge and impose such commu-
nism on the rest of the world.
In addition to material property, the bodies of the faithful would have to be
communized as well. The Taborite ultras were nothing if not logical. Their
preachers taught: 'Everything will be common, including wives; there will be
free sons and daughters of God and there will be no marriage as union of two
- husband and wife'.
The Hussite revolution broke out in 1419, and in that same year, the
Taborites gathered in the town of Usti, in northern Bohemia near the German
border. They renamed Usti, Tabor, i.e. the Mount of Olives where Jesus had
foretold his Second Coming, had ascended to heaven, and where he was
expected to reappear. The Taborites engaged in a communist experiment at
Tabor, owning everything in common, and dedicated to the proposition that
'whoever owns private property commits a mortal sin'. True to their doc-
trines, all women were owned in common, while if husband and wife were
ever seen together, they were beaten to death or otherwise executed. Unfortu-
nately but characteristically, the Taborites were so caught up in their unlim-
ited right to consume from the common store that they felt themselves ex-
empt from the need to work. The common store soon disappeared, and then
what? Then, of course, the radical Taborites claimed that their need entitled
them to claim the property of the non-elect, and they proceeded to rob others
at will. As a synod of the moderate Taborites complained, 'many communi-
ties never think of earning their own living by the work of their hands but are
only willing to live on other people's property and to undertake unjust cam-
paigns for the sole purpose of robbing'. And the Taborite peasantry who did
not join the communes found the radical regime reimposing feudal dues and
bonds only six months after they had abolished them.
Discredited among themselves, their more moderate allies, and their own
peasantry, the communist regime of the radicals at Usti/Tabor soon collapsed.
The torch of frenetic mystical communism was soon picked up, however, by
a sect known as Bohemian Adamites. Like the Free Spirits of the previous
century, the Adamites held themselves to be living gods, superior to Christ,
since Christ had died whereas they still lived. (Impeccable logic, if a bit
short-sighted.) Yet, in a curious contradiction, the founder of the Adamites,
the former priest Peter Kanisch, had already been captured and burnt by the
Hussite military commander, John Zizka. The Adamites dubbed the dead
Kanisch Jesus, and then selected as their leader a peasant whom they called
For the Adamites, not only were all goods strictly owned in common, but
marriage was considered a heinous sin. In short, promiscuity was compul-
sory, since the chaste were unworthy to enter the messianic kingdom. Any
164 Economic thought before Adam Smith

man could choose any woman at will, and that will would have to be obeyed.
The Adamites also went around naked most of the time, imitating the original
state of Adam and Eve. On the other hand, promiscuity was at one and the
same time compulsory and restricted, because sex could only take place with
the permission of the leader Adam-Moses.
Like the other radical Taborites, the Adamites regarded it as their sacred
mission to exterminate all the unbelievers in the world, wielding the sword
until blood floods the world to the height of a horse's bridle. They were
God's scythe, sent to cut down and eradicate the unrighteous.
The Adamites took refuge from the Zizka forces on an island in the River
Nezarka, from which they went forth in commando raids to try their best,
despite their small number, to fulfil their twin pledge of compulsory commu-
nism and extermination of the non-elect. At night, they sallied forth in raids,
which they called a 'holy war', to steal everything they could lay their hands
on and then to exterminate their victims. True to their creed, they murdered
every man, woman and child they could discover.
Finally, Zizka sent a force of 400 trained soldiers who besieged the
Adamites' island, and finally, in October 1421, overwhelmed the commune
and massacred every single person. One more hellish kingdom of God on
earth had been put to the sword.
The Taborite army was crushed by the moderate Hussites at the Battle of
Lipan, in 1434, and from then on, Taborism declined and went underground.
But it continued to emerge here and there, not only among the Czechs, but in
Bavaria and other German lands bordering Bohemia. The stage was set for
the Miintzer-Miinster phenomenon of the following century.

5.8 Non-scholastic Catholics

Turning from the Protestants and the Anabaptist extremists, there were some
Catholics during the sixteenth century who were not scholastics, and who did
not participate in the Reformation struggles, but who contributed signifi-
cantly to the development of economic thought.
One of these was a universal genius whose new way of viewing the world
has stamped itself on world history: the Pole Nicholas Copernicus (1473-
1543). Copernicus was born in Thorn (Torun), part of Royal Prussia, then a
subject state of the kingdom of Poland. He came from a well-to-do and even
distinguished family, his father being a wholesale merchant and his uncle and
mentor the bishop of Ermeland. Copernicus proved an inveterate student and
theorist in many areas: studying mathematics at the University of Cracow,
becoming a skilled painter, studying canon law and astronomy at the famous
University of Bologna. Becoming a cleric, Copernicus was named canon of
the cathedral at Frauenburg at the age of 24, but then took leave to lecture at
Rome and to study in several fields. He then earned a doctor's degree in
Protestants and Catholics J65

canon law at the University of Ferrara in 1503 and a medical degree at the
University of Padua two years later. He became physician to his uncle, the
bishop, and later served full-time as canon of the cathedral.
Meanwhile, as an avocation in the course of his busy life, this remarkable
. theorist elaborated the new system of astronomy that the earth and other
planets rotated around the sun rather than vice versa.
Copernicus turned his attention to monetary affairs when King Sigismund
I of Poland asked him to offer proposals for reform of the tangled currency of
the area. Since the 1460s, Prussian Poland, where Copernicus lived, was the
home of three different currencies: that of Royal Prussia, the Polish kingdom
itself, and that of Prussia of the Teutonic Order. None of the governments
maintained a single standard of weight. The Teutonic Order, in particular,
kept debasing and circulating cheaper money. Copernicus finished his paper
in 1517, and it was delivered to the Royal Prussian Assembly in 1522, and
published four years later.
Copernicus' proposals were not adopted, but the resulting booklet, Monetae
cudendae ratio (1526) made important contributions to monetary thought. In
the first place, Copernicus strengthened the exposition of 'Gresham's law'
first set forth by Nicole Oresme a century and a half earlier. Like Oresme he
began with the insight that money is a measure of common market value. He
then proceeded to show that, if its value is fixed by the state, money fixed
artificially cheaply will tend to drive out the dearer. Thus Copernicus de-
clared that it is impossible for good full-weighted coin and base and degraded
coin to circulate together; that all the good coin is hoarded, melted down or
exported; and the degraded coin alone remains in circulation. He also pointed
out that in theory the government could keep adjusting the legal values of
two moneys in accordance with fluctuating market values, but that in prac-
tice, the government would find this too complex a task.
In the course of his discussion, Copernicus also became the first person to
set forth clearly the 'quantity theory of money', the theory that prices vary
directly with the supply of money in the society. He did so 30 years before
Azpilcueta Navarrus, and without the stimulus of an inflationary influx of
specie from the New World to stimulate his thinking on the subject. Copernicus
was still being a theorist par excellence. The causal chain began with debase-
ment, which raised the quantity of the money supply, which in turn raised
prices. The supply of money, he pointed out, is the major determinant of
prices. 'We in our sluggishness', he maintained, 'do not realize that the
dearness of everything is the result of the cheapness of money. For prices
increase and decrease according to the condition of the money.' 'An exces-
sive quantity of money', he opined, 'should be avoided.'
Another non-scholastic Catholic who contributed to economic thought in
the sixteenth century was a fascinating Italian character named Gian Francesco
J66 Economic thought before Adam Smith

Lottini da Volterra (fl. 1548), who began the Italian emphasis on analysis of
value and utility. In a sense, Lottini was an archetypal 'Renaissance man':
learned Aristotelian scholar; secretary to Cosimo I, de Medici, Duke of
Florence; unscrupulous politician; and leader of a Venetian murder ring. At
the end of his life in 1548, Lottini published his Avvedimenti civili, in the
Italian tradition (see further in chapter 6) of writing a handbook of advice to
princes. The Avvedimenti was the work of an elder statesman dedicated to
Francesco, the Medici Grand Duke of Tuscany.
Lottini investigated consumer demand, and pointed out that the valuation of
consumers was rooted in the pleasure they could derive from the various
goods. In a new hedonistic emphasis, he pointed out that pleasure comes from
satisfying man's needs. While counselling the use of moderation (an Aristote-
lian theme) regulated by reason in satisfying desires, Lottini lamented that
some people's wants and demands seem to be infinite: 'I have known many
whose demand could not be satisfied'. As in the case of several predecessors,
Lottini saw the fact of time-preference: people evaluate present goods higher
than future goods, i.e. than present expectations of attaining these goods in the
future. Unfortunately, Lottini gave to this perfectly reasonable and ineluctable
fact of nature a moralistic twist: somehow this was an improper overestimation
of present and underestimation of future goods. This unwarranted moralistic
critique was to plague economic thought in the future. As Lottini phrased it:
,... the present, which is before our eyes and which can, so to speak, be grasped
with our hands, has forced, more often than not, even wise men to pay more
attention to the nearest satisfaction than to hope for the far future'. The reasons
for this universal fact of time-preference are that people pay more attention to
things they can perceive with their senses than things they can learn of by
reason, and that 'only a few people follow a long-lasting and risky project
stubbornly to its end' . In the first reason, Lottini begs the question: the problem
is not senses vs reason, but something evident to the senses now versus what is
only expected to be evident at some time in the future. His second reason is
more on the mark: the emphasis on the 'long-lasting' touches on the crucial
problem of length of waiting-time, and the word 'risky' brings another and
critical factor into play: the degree of risk that the object will never become
evident to the senses at all.
Lottini's work went into several editions shortly after his death, and a copy
has been found belonging to the great English poet and theologian John
Donne (1573-1631), whose marginal notes reveal the Aristotelian influence
upon Donne.
Successor to Lottini was Bernardo Davanzati (1529-1606), a Florentine
merchant, erudite classicist and renowned translator of Tacitus, and an arch-
Catholic historian of the Reformation in England. At the age of 17, young
Davanzati became a member of the Florentine Academy. In two works,
Protestants and Catholics 167

written in lively Italian style, in 1582 and especially in his Lezione delle
Moneta (1588), Davanzati applied the scholastic type of utility analysis to the
theory of money. Thus Davanzati approached, and solved - with the excep-
tion of the marginal element - the paradox of value, comparing demand and
scarcity. Davanzati also followed Buridan in developing what would later be
the excellent analysis by Carl Menger, father of the Austrian School in the
late nineteenth century, of the origin of money. Men, wrote Davanzati, need
many things for the maintenance of life; but climates and people's skills
differ, hence there arises a division of labour in society. All goods are there-
fore produced, distributed, and enjoyed by means of exchange. Barter was
soon found to be inconvenient, and so locations for exchange developed,
such as fairs and markets. After that, people agreed - but here Davanzati was
cloudy on how this 'agreement' took place - to use a certain commodity as
money, i.e. as a medium for all exchanges. First, gold and silver were used in
lump pieces; then they were weighed, and then stamped to show weight and
fineness in the form of coins. Unfortunately, in his later historical sketch of
the theory of money, Menger was ungracious enough to dismiss Davanzati
brusquely as simply someone who 'traces the origin of money back to the
authority of the state' .15

5.9 Radical Huguenots

Calvin began his own Reformation after Luther, but it rapidly swept through
western Europe, triumphing not only in Switzerland but more importantly in
the Dutch Netherlands, the main commercial and financial centre of Europe
in the seventeenth century, and coming within a hair's breadth of dominating
Great Britain and France. In Britain, Scotland was conquered by Calvinism
in the form of the Presbyterian Church, and Calvinist Puritanism heavily
influenced the Anglican Church and almost conquered England in the mid-
seventeenth century. France was rent by religious-political wars during the
last four decades of the sixteenth century, and the Calvinists, known as
Huguenots, were not far from triumphing there. Though converting no more
than 5 per cent of the population, the Huguenots were extremely influential in
the nobility, and in pockets in northern and south-western France.
John Calvin, fully as much as Luther, preached the doctrine of absolute
obedience and non-resistance to duly constituted government, regardless of
how evil that government may be. But Calvin's embattled followers, enjoy-
ing rising aspirations against non-Calvinist rulers, developed justifications
for resistance to evil rulers. These were first set forth in the 1550s by the
English 'Marian exiles' in Switzerland and Germany during the reign of the
last Catholic monarch in England, Queen Mary. This radical tradition, includ-
ing the people's right to tyrannicide, was carried on by the Huguenots in the
following decades.
168 Economic thought before Adam Smith

Stimulated by the horror of the massacre of St Bartholomew's Day in

1572, the Huguenots promptly developed libertarian theories of radical re-
sistance against the tyranny of the Crown. Some of the most notable writings
are the jurist, Fran~ois Hotman's (1524-90) Francogallia, written in the late
1560s but first published in 1573; the anonymous Political Discourses (1574);
and the culminating work, at the end of the 1570s, by Philippe Du Plessis
Mornay (1549-1623), the Defense ofLiberty against Tyrants (Vindiciae Contra
Tyrannos) (1579). Defending tyrannicide in particular was the Political Dis-
courses, which bitterly attacked the 'so-called theologians and preachers'
who asserted that no one may ever lawfully kill a tyrant 'without a special
revelation from God'. The other Huguenot writers, however, were far more
cautious on this touchy issue.
Furthermore, three decades before the radical Spanish scholastic Juan de
Mariana, the Huguenots advanced a pre-Lockean theory of popular sover-
eignty. In particular, Hotman warned that a people's transference of their
right to rule to the king can in no way be permanent or irrevocable. On the
contrary, the people and their representative bodies have the right of con-
tinual surveillance of the king, as well as of taking away his power at any
time. Not only that, but the states-general is supposed to have continuing
day-to-day power to rule. Hotman won general Huguenot acceptance of this
new creed by cloaking it in terms of Jean Calvin's original, quite contrasting
political doctrine.
But Hotman's argument for original popular rule was strictly historical,
and the counter-attacks of the royalist writers soon riddled the historical
account with gross distortions. It was necessary for the Huguenots to aban-
don the original Calvinist counsel of total civil obedience and construct a
natural law theory of the original sovereignty of the people, preceding the
consensual transfer to kingly rule. In short, the Huguenots had to rediscover
and reappropriate the scholastic tradition of their hated Catholic opponents.
Thus, in contrast to the preaching style and emphasis on divine will of the
Marian exiles, Mornay and other Huguenots wrote in a logical, scholastic
style, and explicitly referred to Aquinas and to codifiers of the Roman law.
In short, as Professor Skinner writes, there was no 'Calvinist theory of
revolution' in the sixteenth century. Paradoxically, the French Calvinists pio-
neered the development of a revolutionary theory of popular rule by grounding
themselves in the natural law tradition of their Catholic adversaries. 16
Furthermore, Ockhamite scholastics at Paris, e.g. Jean Gerson in the early
fifteenth century and the Englishman John Major in the early sixteenth,
pioneered specifically the concept of sovereignty which always inheres in the
people and which they can therefore take back from the king at any time.
One of the pernicious effects on scholarship of Max Weber's Protestant
(actually Calvinist) ethic as the creator of capitalism has already been seen:
Protestants and Catholics 169

the neglect of the actual rise of capitalism in Catholic Italy, as well as in

Antwerp and southern Germany. Another associated Weberian fallacy is the
popular idea of Calvinism as 'modern' and revolutionary, as the creator of
radical and democratic political thought. But we have seen that Calvinist and
Protestant political thought was originally statist and absolutist. Calvinism
only became revolutionary and anti-tyrannical under the pressure of oppos-
ing Catholic regimes, which drove the Calvinists back to natural law and
popular sovereignty motifs in Catholic scholastic thought.
An important strand of popular sovereignty was worked out by Theodore
Beza (1519-1605), Calvin's leading disciple and successor at Geneva. The
great Beza, influenced by Hotman, published The Right of Magistrates in
1574. Beza insisted that natural law revealed that the people logically and
temporally preceded their rulers, so that political power originated in the
body of the people. It is 'self-evident', Beza declared, that 'peoples do not
come from rulers', and are not created by them. Hence the people originally
decided to transfer governing powers to the rulers. An influential radical
Huguenot pamphlet, The Awakener (Le Reveille Malin) (1574) repeated Beza's
argument. (The Awakener was probably written by the eminent French jurist,
Rugues Doneau.) Man could not be naturally in subjection, The Awakener
pointed out, for 'assemblies and groups of men existed everywhere before the
creation of kings', and 'even today it is possible to find a people without a
magistrate but never a magistrate without a people'. If man is not to be
naturally free but naturally enslaved, then we must absurdly conclude that
'the people must have been created by their magistrates' when it is obvious,
to the contrary, that 'magistrates are always created by the people' .
As usual Philippe Du Plessis Mornay summed up the position with trench-
ant clarity. 'No one' , he observed, 'is a king by nature', and, furthermore, and
with particular point, 'a king cannot rule without a people, while a people can
rule itself without a king'. Hence, it is evident that the people must have
preceded the existence of kings or positive laws, and then later submitted
themselves to their dominion. Hence, man's natural condition must be liberty,
and we must possess freedom as a natural right, a right that can never be
justifiably removed. As Mornay put it, we are all 'free by nature, born to hate
servitude, and desirous of commanding rather than yielding obedience' . Fur-
ther, continuing this proto-Lockean analysis, the people must have submitted
themselves to governmental rule to promote their well-being.
Following John Major, Mornay was clear that the kind of well-being the
people advanced in setting up government was to protect their individual
natural rights. To Mornay as to Major, a 'right' over something was being
free to hold and dispose of it, i.e. a right in the object as property. The people
retain such rights when they establish polities, which they willingly create in
order to ensure greater security for their property. These rights of property
170 Economic thought before Adam Smith

include the natural right of everyone in their own persons and their liberties.
Governments are supposed to maintain those rights, but often become the
main transgressors. Mornay was careful to point out that the people, in
establishing governments, cannot alienate their sovereignty. Instead they al-
ways 'remain in the position of the owner' of their sovereignty, which they
merely delegate to the ruler. The 'whole' people therefore continues to be
'greater than the king and is above him'.
On the other hand, Mornay and the other Huguenots were constrained to
temper their revolutionary radicalism. First, they made it clear, in a manner
wholly consistent with their view that the whole people retain their sover-
eignty, that the 'people' are not really the people as a whole but their 'repre-
sentatives' in the magistrates and the states-general. The people have neces-
sarily 'given their sword' to these institutions, and therefore 'when we speak
of the people collectively, we mean those who receive authority from the
people, that is, the magistrates below the king ... [and] the assembly of the
Estates'. Moreover, in practice, these alleged representatives keep the en-
forcement of the king's promises in their hands, since that power of enforce-
ment is a property of 'the authorities that have the power of the people in
Furthermore, according to the Huguenots, the sovereign right is only in the
people as a whole and not in any individual, so that tyrannicide by one
subject is never permissible. The people as a whole are above the king, but
the king is above any single individual. More concretely, since sovereignty
rests in the institutions of duly constituted assemblies or magistrates, only
these institutions embodying the sovereign power of the people can properly
resist the tyranny of the king.
In a few short years, the rebellion of the Dutch against Spanish rule
reached a climax in 1580-81. An anonymous Calvinist pamphlet, A True
Warning, appeared in Antwerp in 1581 which asserted that 'God has created
men free', and that the only power over men is whatever they themselves
have granted. If the king breaks the conditions of his rule, then the people's
representatives have the right and the duty to depose him and to 'resume their
original rights'. The leader of the Dutch rebellion, William the Silent, Prince
of Orange, adopted the same view in these same years, both in his own
Apology presented to the states-general at the end of 1580, and in the official
Edict of the States General issued the following July. (It should be noted that
the Apology was largely written by Mornay and other Huguenot advisors.)
The Edict declared that the king of Spain had 'forfeited his sovereignty', and
that the United Netherlands had at last been obliged, 'in conformity with the
law of nature', to exercise their unquestioned right to resist tyranny, and 'to
pursue such means' as necessary to secure their 'rights, privileges and liber-
ties' .
Protestants and Catholics 171

5.10 George Buchanan: radical Calvinist

The most fascinating as well as the most radical of the Calvinist theorists of
the late sixteenth century was not a French Huguenot but a Scot who spent
most of his time in France. George Buchanan (1506-82) was a distinguished
humanist historian and poet, who taught Latin at the College de Guyenne in
Bordeaux. Buchanan was trained in scholastic philosophy at the University
of St Andrews in the mid-1520s, where he studied under the great John
Major. An early convert to Calvinism, Buchanan became a friend of Beza and
of Mornay, and served as a member of the general assembly of the Church of
British Calvinist thinkers of the 1550s, refugees from the Catholic rule of
Queen Mary, had worked out in exile a justification for rebellion against
tyranny in terms of the godly against idolatry. It remained to restate revolu-
tionary theory in secular, natural rights, terms rather than in the strictly
religious concepts of godliness and heresy. This feat was accomplished by
the Scot George Buchanan, in the midst of a struggle of the Calvinist major-
ity of Scotland against their Catholic queen. A revolution in 1560 had con-
quered the Scottish parliament for Calvinism in a now overwhelmingly Cal-
vinist country, and seven years later the Calvinists deposed the Catholic
queen, Mary Stuart.
In the course of this struggle, Buchanan, in 1567, began to draft his great
work, The Right of the Kingdom in Scotland, which he published in 1579.
Parts of Buchanan's argument appeared in speeches delivered by the new
Scottish Regent James Stewart, Earl of Moray in 1568, and then in discus-
sions between the Scottish and English governments three years later.
Buchanan began, like the Huguenots, with the state of nature and a social
contract by the people with their rulers, a contract in which they retained
their sovereignty and their rights. But there were two major differences. In
the first place, Beza and Mornay had talked of two such contracts: a political
social contract, and a religious covenant to act as a godly people. With
Buchanan, the religious covenant drops out totally, and we are left with the
political contract alone. Some historians have interpreted Buchanan's radical
step as secularizing politics into an independent 'political science'. More
accurately, Buchanan emancipated political theory from the directly divine or
theological concerns of the Protestant founders, and returned it to its earlier
base in natural law and in human rights.
More radically, Buchanan swept away the entire inconsistent Huguenot
baggage of the people virtually alienating their sovereignty to intermediate
'representatives'. On the contrary, for Buchanan the people consent to and
contract with a ruler, and retain their sovereign rights, with no mention of
intermediate assemblies. But this puts far more revolutionary implications
on natural rights and popular sovereignty. For then, when a king becomes
172 Economic thought before Adam Smith

tyrannical and violates his task to safeguard individual rights, this means
'that the whole body of the people, and even individual citizens, may be
said to have the authority to resist and kill a legitimate ruler in defence of
their rights'. Thus, over two decades before the Spanish Jesuit de Mariana,
George Buchanan had arrived, for the first time, at a truly individualist
theory of natural rights and sovereignty and therefore a justification for
individual acts of tyrannicide. Thus, in what Professor Skinner calls 'a
highly individualist and even anarchic view of political resistance', Buchanan
stressed that:

Since the people as a body create their ruler, it is ... possible at any time 'for the
people to shake off whatever Imperium' they may have imposed on themselves,
the reason being that 'anything which is done by a given power can be undone by
a like power'. Furthermore, Buchanan adds that, since each individual must be
pictured as agreeing to the formation of the commonwealth for his own greater
security and benefit, it follows that the right to kill or remove a tyrant must be
lodged at all times 'not only with the whole body of the people' but 'even with
every individual citizen'. So he willingly endorses the almost anarchic conclusion
that even when, as frequently happens, someone 'from amongst the lowest and
meanest of men' decides 'to revenge the pride and insolence of a tyrant' by
simply taking upon himself the right to kill him, such action are often 'judged to
have been done quite rightly, ... '.17

We have seen that the Spanish Jesuit, Juan de Mariana, developed a similar
theory of Lockean popular sovereignty and of individual tyrannicide two
decades later. As a scholastic, he too had a natural law contract and not any
religious covenant at the base of his theory. Skinner ably concludes that

The Jesuit Mariana may thus be said to link hands with the Protestant Buchanan
in stating a theory of popular sovereignty which, while scholastic in its origins
and Calvinist in its later development, was in essence independent of either
religious creed, and was thus available to be used by all parties in the coming
constitutional struggles of the seventeenth century.

More typical, however, of the dominant strand of radical Calvinism emerg-

ing from the sixteenth century was the distinguished Dutch jurist, Johannes
Althusius (1557-1638). His magnum opus was his treatise of 1603, Politics
Methodically Set Forth. Althusius built upon and was similar to Mornay and
the Huguenot theorists. With them, he retained the pre-Lockean popular
sovereignty with consensual revocable delegation to the king, and also with
them he mediated that sovereignty through representative assemblies and
associations. In addition, the justification of individual tyrannicide disap-
pears. However, one innovation of Buchanan's was retained in Althusius'
massi ve treatise: the dropping of any religious covenant. Indeed, Althusius is
more explicit, attacking theologians for infusing their political writings with
Protestants and Catholics 173

'teachings on Christian piety and charity', and failing to realize that these
matters are 'improper and alien to political doctrine'.

5.11 Leaguers and politiques

While the Huguenot monarchomachs have been far more extensively studied
than their Catholic counterparts of the late sixteenth century, the latter are an
interesting and neglected group. After the accession of King Henry III in
1574, it began to be clear that the Huguenots were no longer in danger of
annihilation, and that, on the contrary, it seemed that Henry was soft on
Protestants. This softness became an acute problem for the Catholics of
France in 1584, when the death of the heir to the throne, the Duc d' Alen~on,
brought into the first line of succession Henry of Navarre, a committed
Calvinist. This threat brought into being the Catholic League, especially in
Paris, then the heartland of French Catholicism. The League, headed through-
out France by the Duc de Guise, rebelled against Henry and drove him out of
Paris. As we have seen, Henry's treacherous assassination of Guise and his
brother the cardinal during a peace parley led to a mighty act of tyrannicide,
in which the young Dominican priest, Jacques Clement, on 1 August 1589,
avenged the Guises by assassinating Henry III.
Paris under the Catholic League was run by a council of 16, supported by
the middle classes, professionals and businessmen, and backed fervently by
virtually all the priests and cures in the city. The most radical of the Leaguer
thinkers, who flourished during the 1580s and 1590s, was a leading attorney,
Fran~ois LeBreton, who, in his Remonstrance to the Third Estate (1586),
bitterly attacked the king as a hypocrite, advocated a French republic, and
called for revolution and civil war to attain it. LeBreton was promptly ex-
ecuted by the Parlement, the leading judicial organ in France.
The rebellion of the Catholic League, which culminated in the revolt of
Paris and other parts of France, was not only motivated by concern over the
possible imposition of a minority Huguenot faith upon the Catholic French.
Leaguer grievances were political and economic as well as religious. Henry
III, the last Valois king, had imposed upon his country a huge amount of
pillage, a very high tax burden, and large amounts of expense, offices and
subsidies. Huge taxes were particularly levied upon the city of Paris.
But Father Clement's act, however heroic, proved in the end to be coun-
ter productive. For the first Bourbon, Henry of Navarre, assumed the throne
as Henry IV. Realizing that he could scarcely remain a Huguenot and still
govern France, Henry, after four years of war, converted to Catholicism,
supposedly explaining, in a probably apocryphal phrase, that 'Paris is worth
a mass' . Henry IV had won. With the advent of the new Bourbon king came
the rule of the centrist or 'moderate' Catholics, the politiques - 'the
politicals' .
174 Economic thought before Adam Smith

Whether one might call Henry IV and the politiques 'moderates' depends
on one's perspective. As secularists and men of feeble faith, it is true that the
politiques were not interested in slaughtering Huguenots, and were anxious
to end the religious conflict as soon as possible. Henry did so in his toleration
decree, the Edict of Nantes in 1598. In that sense, the politiques were 'mid-
dle-of-the-roaders' in between the two religious extremes: the Huguenots and
the Catholic Leaguers. And that is the light that most historians have shed
upon them. But in another important sense the politiques were not 'moderate'
at all. For they were truly extreme in desiring to give all power to the
absolute state and to its embodiment in the king of France. In triumphing
over both 'extremes', Henry IV and the politiques rode roughshod over the
only two groups who had called for resistance against royal tyranny. The
victory of Henry also meant the end of French resistance to royal absolutism.
Unchecked despotic rule by the Bourbons was now to be France's lot for two
centuries, until it was brought to a violent end by the French Revolution. It
was a high price indeed to pay for religious concord, especially since Louis
XIV, the 'Sun King', the embodiment of French royal despotism, revoked the
Edict of Nantes in 1685 and thereby drove many Huguenots out of France. In
the long run, the religious 'peace' of absolutist 'moderation' turned out to be
the peace of the grave for many Huguenots.

5.12 Notes
1. Quentin Skinner, The Foundations (~t Modern Political Thought: v()l. II, The Age (~t
Reformation (Cambridge: Cambridge University Press, 1978), p. 143. In particular, two
late sixteenth century works launched this critique: the Italian Jesuit Antonio Possevino
( 1534-1611), A Judgment on the Writings (~t Jean Bodin, Philippe Mornay and Niccolo
Machiavelli (Lyons, 1594); and the Spanish Jesuit Pedro de Ribadeneyra (1527-1611),
Religion and the Virtues (~lthe Christian Prince against Machiavelli (Madrid, 1595, trans.
and ed. by George A. Moore, Maryland, 1949).
2. Gary North, 'The Economic Thought of Luther and Calvin', The Journal (~t Christian
Reconstruction, II (Summer, 1975), p. 77.
3. Richard H. Tawney, Religion and the Rise (~tCapitalism (1927, New York: New American
Library, 1954), p. 80.
4. Ibid., p. 95.
5. In contrast to the Catholics, to Luther, and probably to Calvin (who, however, was
ambivalent on the subject), the Puritans were 'post-millennialist', i.e. they believed that
human beings would have to establish the Kingdom of God on earth for a thousand years
before Christ would return. The others were either 'pre-millennialist' (Christ would return
to earth and then set up a thousand years of the Kingdom of God on earth), or, like the
Catholics, amillennialist (Christ would return period, and then the world would end).
Post-millennialism, of course, tended to induce in its believers eagerness and even haste
to get on with their own establishment of the Kingdom of God on earth so that Jesus could
eventually return.
6. The fact that only late Calvinism developed this version of the calling indicates that
Weber might have had his causal theory reversed: that the growth of capitalism might
have led to a more accommodating Calvinism rather than the other way round. Weber's
approach holds up better in analysing those societies, such as China, where religious
attitudes seem to have crippled capitalist economic development. Thus, see the analysis of
Protestants and Catholics 175

religion and economic development in China and Japan by the Weberian Norman Jacobs,
The Origin (~t" Modern Capitalism and Eastern Asia (Hong Kong: Hong Kong University
Press, 1958).
7. Emil Kauder, A History (~f Marginal Utility Theory (Princeton, NJ: Princeton University
Press, 1965), p.5.
8. Michael Walzer, The Revolution (~f the Saints: A Study in the Origins (~t' Radical Politics
(Cambridge, Mass.: Harvard University Press, 1965), p. 216; see also pp. 206-26.
9. Kauder, op. cit., note 7, p. 9.
10. John T. Noonan, Jr, The Scholastic Analysis (~t' Usury (Cambridge, Mass.: Harvard Uni-
versity Press, 1957), p. 344n.
11. Ibid., p. 371.
12. Eugen von Bohm-Bawerk, Capital and Interest, vhl. I: History and Critique (~f' Interest
Theories (1921, South Holland, Ill.: Libertarian Press, 1959), p. 24.
13. Ronald A. Knox, Enthusiasm: A Chapter in the History of Religion (1950, New York:
Oxford University Press, 1961), p. 133.
14. Quoted in Igor Shafarevich, The Socialist Phenomenon (New York: Harper & Row, 1980),
15. Carl Menger, Principles (do Economics (New York: New York University Press, 1981),
16. Skinner, op. cit., note 1, p. 321.
17. Ibid., pp. 343-4.
18. Ibid., p. 347.
6 Absolutist thought in Italy and France

6. I The emergence of absolutist thought in Italy 179

6.2 Italian humanism: the republicans 181
6.3 Italian humanism: the monarchists 184
6.4 'Old Nick': preacher of evil or first value-free political scientist? 188
6.5 The spread of humanism in Europe 194
6.6 Botero and the spread of Machiavellianism 196
6.7 Humanism and absolutism in France 199
6.8 The sceptic as absolutist: Michel de Montaigne 201
6.9 Jean Bodin: apex of absolutist thought in France 204
6.10 After Bodin 207
6.11 Notes 209

Absolutist thought in Italy and France 179

6.1 The emergence of absolutist thought in Italy

By the twelfth century, the Italian city-states had evolved a new form of
government, new at least since ancient Greece. Instead of the usual heredi-
tary monarch as feudal overlord, basing his rule on a network of feudal
dominion over land areas, the Italian city-states became republics. The com-
mercial oligarchs who constituted the ruling elite of the city-state would elect
as ruler a salaried bureaucratic official or podesta, whose term of office was
short, and who therefore ruled at the pleasure of the oligarchy. This city-
republican form of government began at Pisa in 1085, and had swept north-
ern Italy by the end of the twelfth century.
Since the age of Charlemagne in the ninth century, the German - or 'Holy
Roman' - emperors were legally supposed to be rulers of northern Italy. For
several centuries, however, this rule was merely pro forma, and the city-
states were de facto independent. By the mid-twelfth century, the Italian city-
states were the most prosperous countries in Europe. Prosperity meant the
standing temptation of wealth to loot, and so the German emperors, begin-
ning with Frederick Barbarossa in 1154, began a two-centuries-Iong series of
attempts to conquer the northern Italian cities. The incursions came to an end
with the resounding defeat of Emperor Henry VII's expedition of 1310-13,
followed by the abject withdrawal and dissolution of the imperial army of
Louis of Bavaria in 1327.
In the course of this chronic struggle, legal and political theorists arose in
Italy to give voice to an eventually successful Italian determination to resist
the encroachment of the German monarchs. They evolved the idea of the
right of nations to resist imperial attempts at conquest by other states - what
would later be called the right of national independence, or 'self-govern-
ment' or 'national self-determination'.
During the two centuries of conflict, the major ally of the Italian city-states
against the German empire was the pope, who in that era was able to put
papal armies into the field. As the papal armies helped the cities roll back the
emperor's forces during the thirteenth century, the city-states found to their
growing chagrin that the pope was beginning to assert temporal power over
northern Italy. And those claims could be backed up by the papal armies
occupying large sections of the Italian peninsula.
For a while, some theorists toyed with the idea of reversing Italian policy
and submitting to the German emperor in order to rid themselves of the papal
threat. Prominent among this group was the great Florentine poet Dante
Alighieri, who advanced his pro-imperial and anti-papal views in his Monar-
chy, written at the height of the imperial hopes for the 1310 expedition of
Henry VII. The end of the imperial threat soon afterwards, however, made
this turn to the emperor impractical, as well as unpalatable to the majority of
Italians. And so a new political theory was needed by the oligarchs of the
J80 Economic thought before Adam Smith

Italian city-states. Such a theory would assert the claims of the secular state -
whether republic or monarchy made little difference - to rule at will, un-
checked by the age-old moral and often concrete authority of the Catholic
Church to limit state invasions of natural law and human rights. In short, the
Italian oligarchs needed a theory of state absolutism, of secular power un-
trammelled. The Church was to be impatiently relegated to the purely theo-
logical and 'religious' area while secular affairs would be in the entirely
separate hands of the state and its temporal power. This amounted to the
politique doctrine, as it would come to prevail in late sixteenth century
As we have seen above, the Italian oligarchs found their new theory in the
writings of the political theorist and university professor, Marsiglio of Padua.
Marsiglio can therefore be considered the first absolutist in the modern western
world, and his Defensor Pacis (1324) the first main expression of absolutism.
While Marsiglio was the founding theorist of absolutism in the West, the
specific form of his own cherished polity quickly became obsolete - at least
in Padua. For Marsiglio was an adherent of oligarchical republicanism, but
this form of government proved short-lived, and disappeared in Padua soon
after the publication of his treatise. During the latter half of the thirteenth
century, the Italian city-states became riven between the old oligarchs - the
magnati - striving to retain their power, and the newly wealthy but disenfran-
chised popolani, who kept attempting to gain power. The upshot was that
throughout northern Italy during the last half of the thirteenth century -
beginning with Ferrara in 1264 - power was seized by one man, one signor,
one despot who imposed the hereditary rule of himself and his family. In
effect, hereditary monarchy had been established once again. They were not
called 'kings', since that would have been an absurdly grandiose title for the
territory of one city; and so they gave themselves other names: 'permanent
lord'; 'captain general'; 'duke', etc. Florence was one of the few cities able to
resist the new tide of one-man rule.
In 1328, four years after the publication of Defensor Pacis, the della Scala
family finally managed to impose their control over the city of Padua. The
della Scalas had taken over Verona in the 1260s, and now, after many years
of conflict, Cangrande della Scala was able to seize power in Padua as well.
Quick to inaugurate a new tradition of fawning adulation of tyranny was the
prominent Paduan literary figure Ferreto de Ferreti (c. 1296-1337), who aban-
doned his previous republicanism to compose a long Latin poem on The Rise
of the della Scala.
The hero Cangrande had come, according to Ferreti, and brought peace
and stability at last to 'turbulent' and torn Padua. Ferreti concluded his
panegyric by expressing the fervent hope that the descendants of Cangrande
della Scala would 'continue to hold their sceptres for long years to come'.
Absolutist thought in Italy and France 181

6.2 Italian humanism: the republicans

The defenders of the old oligarchic republics countered the rise of the signori
with a pro-republican absolutism of their own. This development began in
the teaching of rhetoric. By the early twelfth century, the University of
Bologna, and other Italian centres for training lawyers, had developed courses
in rhetoric, originally the art and style of writing letters, to which was later
added the art of public speaking. By the first half of the thirteenth century, the
professors of rhetoric were including direct political commentary in their
lessons and handbooks. One popular form was a propagandistic history of
their particular cities, glorifying the city and its rulers, and expressly devoted
to inculcating the ideology of support for the ruling elite of the city. The most
prominent early master of this genre was the Bolognese rhetorician
Boncampagno da Signa (c.1165-1240), whose most popular work was The
Siege of Ancona (1201-2). Another prominent form, developed by Italian
rhetoricians in the second half of the thirteenth century, was advice-books for
rulers and city magistrates, in which political advice was directed to the
rulers. The most important early advice-book was John of Viterbo's The
Government of Cities, which he wrote in the 1240s after serving as a judge
under the elected ruler, or podesta of Florence. John of Viterbo, however, was
not a full absolutist, since his determinedly moral approach counselled the
ruler always to pursue virtue and justice and to avoid vice and crime.
Whereas the Italian teaching of rhetoric at Bologna and elsewhere was
narrowly practical, the French professors of rhetoric in the thirteenth century
upheld the classical Greek and Roman writers as models of styIe. The French
method was taught at the University of Paris and particularly at Orleans. By
the second half of the thirteenth century, Italian rhetoricians who had studied
in France brought the new approach to Italy, and the broader, more humanis-
tic approach quickly swept the field, dominating even the University of
Bologna. Soon these early humanists began to study the ideas as well as the
style of the classical poets, historians and orators, and began to enliven their
political theory with classical references and models.
The most important of these early humanist rhetoricians was the Florentine
Brunetto Latini (c. 1220-94). Exiled from his native Florence, Latini went to
France at the age of 40 and imbibed the works of Cicero and the French
rhetorical approach. During his exile, Latini composed his leading work, The
Books of Treasure, which introduced Cicero and other classical writers into
the traditional works of Italian rhetoric. On his return to Florence in 1266,
Latini also translated and published some of Cicero's major works.
Particularly important in the new learning was the University of Padua,
beginning with the great judge Lovato Lovati (1241-1309), whom no less a
poet than Petrarch (mid-fourteenth century) called the greatest Italian poet up
to that time. The most important of Lovati's disciples was the fascinating
182 Economic thought before Adam Smith

character Alberto Mussato (1261-1329). Lawyer, politician, historian, drama-

tist and poet, Mussato was the leader of the republican faction in Padua, the
main opposition to the lengthy campaign by the della Scala family to seize
power in that city. (Ironically enough, Ferreto de Ferreti, the panegyrist of the
della Scala victory, had been a fellow disciple in the Lovati circle.) Mussato
wrote two histories of Italy; his most prominent literary effort was the nota-
ble Latin verse play Ecerinis (1313-14), the first secular drama written since
the classical era. Here Mussato employed the new rhetoric as politician and
propagandist. He explains in the introduction to the play that his chief pur-
pose was to 'inveigh with lamentations against tyranny', specifically of course
the tyranny of the della Scalas. The political propaganda value of Ecerinis
was quickly recognized by the Paduan oligarchy, which crowned Mussato
with a laurel wreath in 1315, and issued a decree ordering the play to be read
aloud each year before the assembled populace of the city.
The new study of the classics also gave rise to sophisticated city chroni-
cles, such as the Chronicle of Florence written in the early fourteenth century
by Dino Compagni (c. 1255-1324), a prominent lawyer and politician of the
city. Indeed, Compagni was himself one of the rulers of the Florentine oligar-
chy. Another important example of republican rhetorical humanism was
Bonvesin della Riva's book, The Glories ofthe City ofMilan (1288). Bonvesin
was a leading professor of rhetoric in Milan.
All these writers - Latini, Mussato, Compagni, and others - were con-
cerned to work out a political theory in defence of oligarchical republican
rule. They concluded that there are two basic reasons for the rise of the hated
signori: the emergence of factions within the city, and love of greed and
luxury. Both sets of ills were of course an implicit attack on the rise of the
nouveau riche popolani and the challenge of the popolani against the old
republican magnates. Without the new wealth of the popolani or the rise of
their factions, the old oligarchy would have gone on their way undisturbed in
the quiet exercise of power. Compagni put it baldly: Florence was disrupted
because 'the minds of the false popolani' had been 'corrupted to do wrong
for the sake of gain'. Latini sees the source of evil in 'those who covet
riches', and Mussato attributes the death of the Paduan republic to 'the lust
for money' which undermined civic responsibility. Note the emphasis on the
'lust' or 'coveting' of money, that is, by new wealth; old and therefore 'good'
wealth - that of the magnates - does not require lust or coveting since it is
already in the possession of the oligarchy.
The way to end factions, according to the humanists, was for the people to
put aside personal interests for unity on behalf of the 'public' or civic 'inter-
est', of the 'columon good'. Latini set the tone by bringing in Plato and
Aristotle, Plato for instructing us that 'we ought to consider the common
profit above everything else', and Aristotle for stressing that 'if each man
Absolutist thought in Italy and France 183

follows his own individual will, the government of men's lives is destroyed
and totally dissolved'.
Blather about the 'public interest' and the 'common good' may be all very
well, until the time comes to interpret in practice what these cloudy concepts
are supposed to mean and in particular who is supposed to interpret their
meaning. To the humanists the answer is clear: the virtuous ruler. Select
virtuous rulers, trust in their virtue, and the problem is solved.
How are the people supposed to go about selecting virtuous rulers? That
was not the sort of embarrassing question posed or considered by the Italian
humanists. For that would have led ineluctably to considering institutional
mechanisms which might promote the selection of virtuous rulers, or worse
yet, prevent the selection of the vicious. Any such tampering with institutions
would have led to checks on the absolute power of rulers, and that was not
the mind-set of these humanist apologists for the sovereign power of oligar-
The humanists were clear, however, that virtue inheres in the individuals
and not in noble families per se. While it was surely sensible of them to avoid
centring virtue in hereditary noble families, it also meant that the virtuous
ruler could personally reign unchecked by any traditional family ties or
The only check offered to ensure the virtue of rulers, the only real criterion
for such virtue, was if the rulers followed the advice of these humanists, as
elaborated in their advice-books. Happily, while Latini and his humanist
followers established all the preconditions for absolute rule, they did not
proceed to endorse absolutism itself. For, like John of Viterbo before them,
they insisted that the ruler must be truly virtuous, including cleaving to
honesty and the pursuit of justice. Like John of Viterbo and others in what
has been called the 'mirror-of-princes' literature, Latini and his followers
insisted that the ruler must avoid all temptations to fraud and dishonesty, and
that he serve as a model of integrity. To Latini and the others, true virtue and
the self-interest of the ruler were one and the same. Honesty was not only
morally correct, it was also, in a later phrase, 'the best policy'. Justice,
probity, being loved by his subjects rather than being feared - all would also
serve to maintain the ruler in power. Seeming to be just and honest, Latini
made clear, was not enough; the ruler, both for the sake of virtue and for
keeping his power~ 'must actually be as he wishes to seem', for he will be
'grossly deceived' if 'he tries to gain glory by false methods ... ' There was, in
short, no conflict between morality and utility for the ruler; the ethical turned
out, harmoniously, to be the useful.
The next great burst of Italian humanism came in the city of Florence,
nearly a century later. The independence of Florence, the stronghold of
oligarchic republicanism, was threatened, for three-quarters of a century,
184 Economic thought before Adam Smith

from the 1380s to the 1450s, by the Visconti family of Milan. Giangeleazzo
Visconti, signor and duke of Milan, set out in the 1380s to reduce all northern
Italy to his subjection. By 1402, Visconti had conquered all northern Italy
except Florence, and that city was saved by the sudden death of the duke.
Soon, however, Giangeleazzo's son, Duke Filippo Maria Visconti, launched
the war of conquest again. All-out war between Florence and imperial Milan
continued from 1423 until 1454, when Florence induced Milan to recognize
the independence of the Florentine republic.
The embattled status of the Florentine republic led to a revival of republi-
can humanism. While these early fifteenth century Florentine humanists were
more philosophically oriented and more optimistic then their early fourteenth
century Paduan and other Italian predecessors, their political theory was very
much the same. All these leading Florentine humanists (much better known
to later historians than the earlier Paduans) had similar biographies: they
were trained as lawyers and rhetoricians, and they became either professors
of rhetoric and/or top bureaucrats in Florence, in other cities, or at the papal
court at the Vatican. Thus the doyen of the Florentine humanists was Coluccio
Salutati (1331-1406), who studied rhetoric at Bologna and became chancel-
lor at various Italian cities, in the last three decades of his life at Florence. Of
Salutati's main disciples, Leonardo Bruni (1369-1444) studied law and rhetoric
in Florence, became secretary at the papal curia, and then became a top
bureaucrat and finally chancellor of Florence from 1427 until his death. Pier
Paolo Vergerio (1370-1444) began training in law in Florence a:ld then rose
to secretary at the papal curia; and similarly Poggio Bracciolini ~ 1380-1459)
studied civil law at Bologna and Florence and then became a professor of
rhetoric at the papal curia.
The second generation of the Salutati circle also followed similar careers
and had kindred views. Here should be mentioned the distinguished architect
Leon Battista degli Alberti (1404-72) of the great banking family, who earned
a doctorate in canon law at Bologna and then became a papal secretary;
Giannozzo Manetti (1396-1459) was educated in law and humanistic studies
in Florence, and then served for two decades in the Florentine bureaucracy,
later becoming secretary at the papal curia and finally secretary to the king of
Naples; and Matteo Palmieri (1406-75) became a top bureaucrat for five
decades in Florence, including eight different ambassadorships.

6.3 Italian humanism: the monarchists

The political and economic decline of the Italian city-states after the turn to
the Atlantic in the late fifteenth and sixteenth centuries, was marked in
foreign affairs by the repeated invasions of Italy by armies of the burgeoning
nation-states of Europe. The French kings invaded and conquered Italy re-
peatedly from the 1490s on, and from the early 1520s to the 1550s the armies
Absolutist thought in Italy and France 185

of France and the Holy Roman Empire fought over Italy as a battleground for
While Florence and the remainder of northern Italy were being invaded
from without, republicanism throughout Italy finally gave way to despotic
one-man rule of the various signori. Whereas republican forces, headed by
the Colonna family, had managed to deprive the popes of their temporal
power during the mid-fifteenth century, by the end of that century the popes,
led by Alexander VI (1492-1503) and Julius II (1503-13) managed to reas-
sert themselves as unchallenged temporal monarchs over Rome and the papal
states. In Florence, the powerful de Medici family of bankers and politicians
began slowly but surely to build up their political power until they could
become hereditary monarchs, signori. The process began as early as the
1430s with the great Cosimo de Medici, and culminated in the seizure of
power in 1480 by Cosimo's grandson Lorenzo 'the Magnificent'. Lorenzo
ensured his one-man rule by setting up a 'council of seventy' with complete
control over the republic, all comprising his own supporters.
The republican forces fought back, however, and the struggle lasted an-
other half-century. In 1494, the republican oligarchs forced Lorenzo's son
Piero into exile after he had surrendered Florence to the French. Republican
rule collapsed in 1512, when the Medici took command with the aid of
Spanish troops. Medici power then reigned until 1527, when another republi-
can revolution drove them out; but two years later the Medici pope, Clement
VII, induced the Habsburg Holy Roman Emperor Charles V to invade and
conquer Florence on the Medici's behalf. Charles did so in 1530, and the
Florentine republic was no more. Clement VII, left in charge of Florence by
the emperor, appointed Alessandro de Medici ruler of the city for life, and
Alessandro and all his heirs were also named lords of the city in perpetuity.
The government of Florence dissolved into the Medici Grand Duchy of
Tuscany, and the Medicis ran Tuscany as monarchs for two more centuries.
The final triumph of the signori put an end to the optimism of the early
fifteenth century republican humanists, whose successors began to grow cynical
about politics and to advocate lives of quiet contemplation.
Other humanists, however, seeing on which side their bread was buttered,
executed a quick shift from praising republican oligarchy to lauding one-man
monarchy. We have already seen Ferreto Ferreti's swiftness in composing a
panegyric to the della Scala tyranny in Padua. Similarly, around 1400, the
peripatetic and usually republican P.P. Vergerio, during his stay in monarchi-
cal Padua, composed a work On Monarchy, in which he hailed that system as
'the best form of government'. Monarchy, after all, ended tumult and the
ceaseless conflict of factions and parties; it brought peace, 'safety, security
and the defence of innocence' . Also, with the victory of Visconti absolutism
in Milan, the Milanese humanists quickly fell into line, composing panegyr-
J86 Economic thought before Adam Smith

ics to the glory of princely, and especially of Visconti, rule. Thus Uberto
Decembrio (c. 1350-1427) dedicated four books on local government to Filippo
Maria Visconti in the 1420s, while his son Pier Candido Decembrio (1392-
1477), keeping up the family tradition, wrote a Eulogy in Praise of the City of
Milan in 1436.
With the triumph of the rule of the signori throughout Italy in the late
fifteenth and early sixteenth centuries, pro-princely humanism reached a peak
of enthusiasm. The humanists proved to be nothing if not flexible in adjusting
their theories to adapt from republican to princely rule. The humanists started
turning out two kinds of advice-books: to the prince, and to the courtier, on
how he should conduct himself toward that prince.
By far the most celebrated advice-book for courtiers was The Book of the
Courtier (ll libro del Cortegiano), by Baldassare Castiglione (1478-1529).
Born in a village near Mantua, Castiglione was educated at Milan and en-
tered the service of the duke of that city. In 1504, he became attached to the
court of the duke of Urbino, which he served faithfully as diplomat and
military commander for two decades. Then, in 1524, Castiglione was passed
over to the Emperor Charles V in Spain, and for his services, Charles made
him bishop of Avila. Castiglione composed the Book of the Courtier as a
series of dialogues between 1513 and 1518, and the book was first published
in 1528 in Venice. The work became one of the most widely read books in the
sixteenth century (known to Italians as Il libro d'oro), clearly touching a
nerve in the culture of that epoch in its description and celebration of the
qualities of the perfect courtier and gentleman.
The Florentine humanists of the early fifteenth century had been optimistic
for man, for his quest for virtus (or virtu) or excellence, and for the 'honour,
praise, and glory' which more traditional Christians had thought due only to
God. It was therefore easy for the later, sixteenth century humanists to trans-
fer that quest for excellence and glory from individual man to being the sole
function of the prince. Thus Castiglione declares that the courtier's chief
goal, 'the end to which he is directed', must be to advise his prince so that the
latter may attain 'the pinnacle of glory' and make himself 'famous and
illustrious in the world' .
The earlier republican humanists had nurtured the ideal of 'liberty', by
which they meant, not the modern concept of individual rights, but republi-
can, generally oIigarchial, 'self-government'. Castiglione expressly condemns
such old notions, on behalf of the monarchical virtues of peace, absence of
discord, and total obedience to the absolute prince. In The Book of the
Courtier, one of the characters in the dialogue protests that princes 'hold their
subjects in the closest bondage' so that liberty is gone. Castiglione shrewdly
counters, in age-old terms used in numerous apologia for despotism, that
such liberty is only a plea that we be allowed to 'live as we like' rather than
Absolutist thought in Italy and France J87

'according to good laws'. Since liberty is only licence, then, a monarch is

needed to 'establish his people in such laws and ordinances that they may
live in ease and peace' .
A leading writer of advice-books to both the prince and the courtier, and a
man who bears the dubious distinction of being perhaps the first mercantilist,
was the Neapolitan duke, Diomede Carafa (1407-87). Carafa wrote The
Perfect Courtier while serving at the court of Ferdinand, king of Naples, in
the 1480s, as well as The Office ofa Good Prince during the same period. In
The Perfect Courtier, Carafa set the tone for Castiglione's enormously influ-
ential work a generation later. In his Office of a Good Prince, Carafa set the
model for the form of economic advice presented by consultant administra-
tors. As in many later works, the book begins with principles of general
policy and defence, then goes on to administration of justice, to public
finance, and finally economic policy proper.
In detailed policies, Carafa's advice is relatively sensible, and not nearly as
totally power-oriented or as statist as later mercantilists advising fully fledged
nation-states. The budget should be balanced, since forced loans are compa-
rable to robbery and theft, and taxes should be equitable and moderate in
order not to oppress labour or drive capital from the country. Business should
be left alone but, on the other hand, Carafa called for subsidies of industry,
agriculture, and commerce by the state, as well as substantial welfare expen-
ditures. In contrast to the later mercantilists, foreign merchants, declared
Carafa, should be made welcome because their activities are highly useful to
the country.
But there is no hint in Carafa, in contrast to the scholastics, of any desire to
understand or analyse market processes. The only important question was
how the ruler can manipulate them. As Schumpeter wrote of Carafa: 'The
normal processes of economic life harbored no problem for Carafa. The only
problem was how to manage and improve them'.
Schumpeter also attributes to Carafa the first conception of a national
economy, of the entire country as one large business unit managed by the
prince. Carafa was,

so far as I know, the first to deal comprehensively with the economic problems of
the nascent modern state the fundamental idea that Carafa clothed in his con-
ception of the Good Prince of a National Economy ... [which] is not simply the
sum total of the individual households and firms or of the groups and classes
within the borders of a state. It is conceived as a sort of sublimated business unit,
something that has a distinct existence and distinct interests of its own and needs
to be managed like a big farm. I

Perhaps the leading work among the new genre of advice-books to princes
was that of Francesco Patrizi (1412-94), in his The Kingdom and the Educa-
188 Economic thought before Adam Smith

tion of the King, written in the 1470s and dedicated to the first activist pope,
Sixtus IV, engaged in restoring the temporal power of the papacy in Rome
and the papal states. A Sienese humanist, Patrizi was made bishop of Gaeta.
As in the other humanist advice-books, Patrizi sees the locus of virtus in
the prince. But it should be noted that, along with his fellow pro-prince
humanists as well as the earlier republicans, Patrizi's virtuous prince is very
much the model of Christian virtue. The prince must be a staunch Christian,
and must always seek and cleave to justice. In particular, the prince must
always be scrupulously honest and honourable. He 'is never to engage in
deceit, never to tell a lie, and never to permit others to tell lies'. Alone with
his fellow later humanists, however, Patrizi speaks of the prince as having a
different set of virtues from his more passive subjects. As the maker of
history and the seeker after glory, for example, the prince is not supposed to
be humble. On the contrary, he is supposed to be generous, lavish in spending
and altogether 'magnificent' .
The triumph of the signori led to many advice-books entitled, simply The
Prince (ll Principe). One was written by Bartolomeo Sacchi (1421-81) in
1471 in honour of the duke of Mantua, and an important one by Giovanni
Pontano (1426-1503) who introduced himself to King Ferdinand of Naples
by writing The Prince in his honour in 1468. In return, King Ferdinand made
Pontano his secretary for more than 20 years. Pontano continued to extol his
patron, in two separate treatises praising the twin princely virtues in Ferdinand
of generosity and lavish splendour. In On Liberality, Pontano declares that
'nothing is more undignified in a prince' than lack of generosity. And in On
Magnificence, Pontano insists that creating 'noble building, splendid Churches
and theatres' is a crucial attribute of princely glory, and lauds King Ferdinand
for 'the magnificence and majesty' of the public building he had constructed.

6.4 'Old Nick': preacher of evil or first value-free political scientist?

The Italian humanists had propounded the doctrine of absolute political rule,
first by republican oligarchs and next by the glorified despot, the monarch or
prince. But one crucial point remained to free the ruler of all moral shackles
and to allow and even glorify the unchecked and untrammelled rule of royal
whim. For while the humanists would hear of no institutional check on state
rule, one critical stumbling block still remained: Christian virtue. The ruler,
the humanists all admonished, must be Christian, must cleave always to
justice, and must be honest and honourable.
What was needed, then, to complete the development of absolutist theory,
was a theoretician to fearlessly break the ethical chains that still bound the
ruler to the claims of moral principle. That man was the Florentine bureaucrat
Niccolo Machiavelli (1469-1527) in one of the most influential works of
political philosophy ever written, The Prince.
Absolutist thought in Italy and France 189

Niccolo Machiavelli was born in Florence, to a moderately well-off Tuscan

noble family. His personal preference was clearly for the old oligarchic
republic rather than for the signori, and in 1494, when the republicans kicked
the Medicis out of Florence, young Niccolo entered the city bureaucracy.
Rising rapidly in the government, Machiavelli became secretary of the Coun-
cil of Ten, which managed the foreign policy and the wars of Florence. He
held this important post until the Medicis reconquered Florence in 1512,
serving in a series of diplomatic and military missions.
Machiavelli was nothing if not 'flexible', and this philosopher extraordinaire
of opportunism greeted the return of the hated Medicis by attempting to
ingratiate himself in their eyes. During the year 1513 he wrote The Prince,
superficially yet another in the traditional series of advice-books and pan-
egyrics to princes. Hoping to induce the Medicis to read it so that he might be
restored to a top bureaucratic post, Machiavelli had the lack of shame needed
to dedicate the book 'to the magnificent Lorenzo de Medici'. The Medicis,
however, did not take the bait, and the only thing left for Machiavelli was to
embark on a literary career, and to drift back into republican conspiracies.
Machiavelli took part in conspiratorial republican meetings at the Oricellari
Gardens on the outskirts of Florence, owned by the aristocrat Cosimo Rucellai.
It was at the Oricellari Gardens that Machiavelli discussed the drafts of his
second most important book, the Discourses on the First Ten Books of Titus
Livy, written from 1514 to 1519.
Niccolo Machiavelli was reviled throughout Europe during the sixteenth
century and on into the next two centuries. He was considered to be someone
unique in the history of the West, a conscious preacher of evil, a diabolic
figure who had unleashed the demons in the world of politics. The English
used his given name as a synonym for the Devil, 'Old Nick'. As Macaulay
put it: 'Out of his surname they have coined an epithet for a knave, and out of
his Christian name a synonym for the Devil.'
In modern times, Machiavelli's reputation as a preacher of evil has been
replaced by the admiration of political scientists as the founder of their
discipline. For Machiavelli had cast off outdated moralism to look at power
coolly and hard-headedly. A tough-minded realist, he was the pioneer devel-
oper of modern, positive, value-free political science. As the mercantilist,
power-oriented, founder of modern 'scientific' method, Sir Francis Bacon,
was to write early in the seventeenth century: 'We are much beholden to
Machiavel and others, that write what men do, and not what they ought to
Well, which was Machiavelli, a teacher of evil or a value-free political
scientist? Let us see. At first glance, The Prince was very much like other
mirror-of-princes advice-books of the late fifteenth century humanists. The
prince was supposed to seek virtu, or excellence, and was supposed to pursue
190 Economic thought before Adam Smith

honour, glory and fame in the development of such excellence. But within
this traditional form, Machiavelli wrought a radical and drastic transforma-
tion, creating in this way a new paradigm for political theory. For what
Machiavelli did was to redefine the critical concept of virtu. For the human-
ists, as for Christians and classical theorists alike, virtu, excellence, was the
fulfilment of the traditional classical and Christian virtues: honesty, justice,
benevolence, etc. For Old Nick, on the contrary, virtu in the ruler or prince -
and for the late humanists, after all, it was only the prince who counted -
was, simply and terribly, as Professor Skinner puts it, 'any quality that helps
a prince 'to keep his state'.2 In short, the overriding, if not the only goal for
the prince was to maintain and extend his power, his rule over the state.
Keeping and expanding his power is the prince's goal, his virtue, and there-
fore any means necessary to achieve that goal becomes justified.
In his illuminating discussion of Machiavelli, Professor Skinner tries to
defend him against the charge of being a 'preacher of evil' . Machiavelli did
not praise evil per se, Skinner tells us; indeed, other things being equal, he
probably preferred the orthodox Christian virtues. It is simply that when
those virtues became inconvenient, that is, when they ran up against the
overriding goal of keeping state power, the Christian virtues had to be set
aside. The more naive humanists also favoured the prince's keeping his state
and achieving greatness and glory. They believed, however, that this could
only be done by always maintaining and cleaving to the Christian virtues. In
contrast, Machiavelli realized that cleaving to justice, honesty and other
Christian virtues might sometimes, or even most of the time, conflict with the
goal of maintaining and expanding state power. For Machiavelli, orthodox
virtues would then have to go by the board. Skinner sums up Machiavelli as

Machiavelli's final sense of what it is to be a man of virtu and his final words of
advice to the prince, can thus be summarised by saying that he tells the prince to
ensure above all that he becomes a man of 'flexible disposition': he must be
capable of varying his conduct from good to evil and back again 'as fortune and
circumstances dictate'.3

Professor Skinner, however, has a curious view of what 'preaching evil'

might really be. Who in the history of the world, after all, and outside a Dr Fu
Manchu novel, has actually lauded evil per se and counselled evil and vice at
every step of life's way? Preaching evil is to counsel precisely as Machiavelli
has done: be good so long as goodness doesn't get in the way of something
you want, in the case of the ruler that something being the maintenance and
expansion of power. What else but such 'flexibility' can the preaching of evil
be all about?
Absolutist thought in Italy and France 191

Following straightaway from power as the overriding goal, and from his
realism about power and standard morality being often in conflict, is
Machiavelli's famous defence of deception and mendacity on the part of the
prince. For then the prince is advised always to appear to be moral and
virtuous in the Christian manner, since that enhances his popularity; but to
practise the opposite if necessary to maintain power. Thus Machiavelli stressed
the value of appearances, of what Christians and other moralists call 'hypoc-
risy'. The prince, he writes, must be willing to become 'a great liar and
deceiver', taking advantage of all the credulous: for 'men are so simple' that
'the deceiver will always find someone ready to be deceived'. Or, in the
immortal words of P.T. Barnum centuries later, 'There's a sucker born every
minute'. And again, in praising fraud and deceit, Machiavelli writes that
'contemporary experience shows that princes who have achieved great things
have been those who have given their word lightly, who have known how to
trick men with their cunning, and who, in the end, have overcome those
abiding by honest principles'. Or, in the words of another astute American
social critic: 'nice guys finish last' .
There is, of course, an inner contradiction in a preacher of deceit can-
didly(!) broadcasting such views to one and all. For, as rulers begin to adopt a
'pragmatic' philosophy which is their natural inclination in any case, the
deluded public may begin to awaken to the true state of affairs ('the suckers
may wise up'), and then continuing deceit by the ruling class might well
prove counterproductive. The 'great liars and deceivers' might no longer find
so many subjects so 'ready to be deceived'.
Niccolo Machiavelli, therefore, was unquestionably a new phenomenon in
the western world: a conscious preacher of evil to the ruling class. What of
his alleged contributions in founding a hard-nosed, realistic, value-free politi-
cal science?
First, one of his main contributions has been claimed to be the overwhelm-
ing use of power, of force and violence, by the rulers of state. Machiavelli
was scarcely the first political philosopher who understood that force and
violence are at the heart of state power. Previous theorists, however, were
anxious to have that power curbed by ancient or Christian virtues. But there
is a certain refreshing realism in Machiavelli's total casting off the cloak of
virtue in politics and in his seeing the state plainly as unadorned brutal force
in the service of sheer power.
There is a profound sense, too, in which Machiavelli was the founder of
modern political science. For the modern 'policy scientist' - political scien-
tist, economist, sociologist, or whatever - is a person who has put himself
quite comfortably in the role of adviser to the prince or, more broadly, to the
ruling class. As a pure technician, then, this counsellor realistically advises
the ruling class on how to achieve their goals, which, as Machiavelli sees,
192 Economic thought before Adam Smith

boils down to achieving greatness and glory by maintaining and expanding

their power. The modern policy scientists eschew moral principles as being
'unscientific' and therefore outside their sphere of interest.
In all this, modern social science is a faithful follower of the wily Florentine
opportunist. But in one important sense the two differ. For Niccolo Machiavelli
never had the presumption - or the cunning - to claim to be a true scientist
because he is 'value-free'. There is no pretend value-freedom in Old Nick.
He has simply replaced the goals of Christian virtue by another contrasting
set of moral principles: that of maintaining and expanding the power of the
prince. As Skinner writes:

it is often claimed that the originality of Machiavelli's argument. .. lies in the fact
that he divorces politics from morality, and in consequence emphasises the 'au-
tonomy of politics' ... [but] the difference between Machiavelli and his contempo-
raries cannot adequately be characterized as a difference between a moral view of
politics and a view of politics as divorced from morality. The essential contrast is
rather between two different moralities - two rival and incompatible accounts of
what ought ultimately to be done. 4

Modern social scientists, in contrast, pride themselves on being realistic

and value-free. But in this, ironically, they are far less realistic or perhaps less
candid than their Florentine mentor. For, as Machiavelli knew full well, in
taking on their role of adviser to the rulers of state, the 'value-free scientist'
is willy-nilly, committing himself to the end, and therefore to the overriding
morality, of strengthening the power of those rulers. In advocating public
policy, if nowhere else, value-freedom is a snare and a delusion; Old Nick
was either too honest or too much of a realist even to consider thinking
Niccolo Machiavelli, therefore, was both the founder of modern political
science and a notable preacher of evil. In casting out Christian or natural law
morality, however, he did not presume to claim to be 'value-free' as do his
modern followers; he knew full well that he was advocating the new morality
of subordinating all other considerations to power and to the reasons of state.
Machiavelli was the philosopher and apologist par excellence for the untram-
melled, unchecked power of the absolute state.
Some historians like to contrast the 'bad' Machiavelli of The Prince with
the 'good' Machiavelli of his later though less influential Discourses. Failing
to convince the Medicis of his change of heart, Machiavelli reverted, in the
Discourses, to his republican leanings. But the Old Nick of the Discourses is
in no sense transformed by goodness; he is simply adapting his doctrine to a
republican as against a monarchical polity.
Obviously, as a republican Machiavelli can no longer stress the virtu and
the greatness of the prince, and so he shifts ground to a kind of collective
Absolutist thought in Italy and France 193

virtu by the community as a whole. Except that in the case of the community,
of course, virtu can no longer be doing great deeds and maintaining one
man's power. It now becomes acting always in the 'public good' or the
'common good', and always subordinating an individual's or a group's pri-
vate, 'selfish' interests to an alleged greater good.
In contrast, Machiavelli condemns the pursuit of private interest as 'cor-
ruption' . In short, Machiavelli is still holding the maintenance and expansion
of state power to be the highest good, except that now the state is oligarchic
and republican. What he is really preaching is similar to the creed of earlier
republican humanists: each individual and group subordinates itself and obeys
without question the decrees of the oligarchic ruling class of the republican
Niccolo Machiavelli is the same preacher of evil in the Discourses as he
had been in The Prince. One of the first atheist writers, Machiavelli's attitude
toward religion in the Discourses is typically cynical and manipulative. Reli-
gion is helpful, he opined, in keeping subjects united and obedient to the
state, and thus 'those princes and those Republics which desire to remain free
from corruption should above all else maintain incorrupt the ceremonies of
their religion'. Religion could also make a positive contribution if it glorified
strength and other warlike qualities, but unfortunately Christianity has sapped
men's strength by preaching humility and contemplation. In a tirade antici-
pating Nietzsche, Machiavelli charged that Christian morality has 'glorified
humble and contemplative men' and that this peaceful spirit has led to exist-
ing corruption.
Machiavelli thundered that citizens can only achieve virtu if their highest
goal is maintaining and expanding the state, and that therefore they must
subordinate Christian ethics to that end. Specifically, they must be prepared
to abandon the restraints of Christian ethics and be willing 'to enter on the
path of wrongdoing' in order to maintain the state. The state must always
take precedence. Therefore, any attempt to judge politics or government on a
scale of Christian ethics must be abandoned. As Machievelli puts it with
crystal clarity and great solemnity at the end of his final Discourse, 'when the
safety of one's country depends upon the decision to be taken, no considera-
tions of justice or injustice, humanity or cruelty, nor of glory or shame,
should be allowed to prevail' .
Machiavelli's views, and the essential unity with his outlook in The Prince,
are shown in his discussion in The Discourses of Romulus, the legendary
founder of the city of Rome. The fact that Romulus murdered his brother and
others is justified by Machiavelli's view that only one man should impose the
founding constitution of a republic. Machiavelli's wily conflation of the
'public good' with the private interests of the ruler is shown in the following
mendacious passage: 'A sagacious legislator of a republic, therefore, whose
194 Economic thought before Adam Smith

object is to promote the public good, and not his private interests [sic] ... should
concentrate all authority in himself'. In such concentration, the end of estab-
lishing the state excuses any necessary means: 'a wise mind will never
censure anyone for taking any action, however extraordinary, which may be
of service in the organizing of a kingdom or the constituting of a republic' .
Machiavelli concludes with what he calls the 'sound maxim' that 'reprehen-
sible actions may be excused by their effects, and that when the effect is
good, as it was in the case of Romulus, it always excuses the action'.
Throughout the Discourses, Machiavelli preaches the virtue of deceit for
the ruler. He insists, also, in contrast to previous humanists, that it is better
for a ruler to be feared than to be loved, and that punishment is far better than
clemency in dealing with his subjects. Furthermore, when a ruler finds that a
whole city is rebelling against his rule, by far the best course of action is to
'wipe them out' altogether.
Thus, Professor Skinner is perceptive and correct when he concludes, in re
The Prince and the Discourses, that

the underlying political morality of the two books is thus the same. The only
change in Machiavelli's basic stance arises out of the changing focus of his
political advice. Whereas he was mainly concerned in The Prince with shaping
the conduct of individual princes, he is more concerned in the Discourses with
offering his counsel to the whole body of the citizens. The assumptions underly-
ing his advice, however, remain the same as before.

Machiavelli is still at one and the same time a preacher of evil and a
founder of modern political and policy science.

6.5 The spread of humanism in Europe

The newly fashionable Italian humanism, marked by its philological and
literary devotion to the classical texts, its absolutist political thought, and its
contempt for the systematic thinking and natural law doctrines of the scholas-
tics, spread like wildfire to the north - to France, England, Germany, and the
Netherlands - during the fifteenth century. This conquest of northern scholar-
ship and northern universities by the sixteenth century was nearly as influen-
tial as the upsurge of the Protestant Reformation in putting an end to scholas-
tic thought, and in paving the way for the dominance of the absolute state.
There was one important difference, however, in the political thought taken
over by the northern humanists: in countries such as France, Germany and
England, where the king was acquiring ever more centralized and dominant
power, all discussion of the virtues of oligarchic republicanism seemed like
bizarre and irrelevant blather. For the northern humanists, in contrast, were
solidly committed to the 'prince' - although of course, to the virtuous pre-
Machiavellian prince - and to themselves as sage counsellors to power.
Absolutist thought in Italy and France 195

The first Italian humanist to teach in France, and to cause a sensation in so

doing, was the Neapolitan Gregorio da Tiferna (c. 1415-66), who arrived at
the University of Paris in 1458 to become its first professor of Greek. Other
Italian humanists soon came to storm successfully that venerable redoubt of
medieval and early renaissance scholasticism. Filippo Beroaldo (c.1440-
1504) came in 1476 to lecture on poetry, philosophy and humanist studies.
Particularly influential at the University of Paris was Fausto Andrelini (c. 1460-
1518), who taught at the University of Paris for 30 years, beginning in 1489,
winning great fame for his classical scholarship on the Latin poets and
Humanism penetrated England beginning with Pietro del Monte (d. 1457)
who, from 1435 to 1440, was a collector of papal revenues in England, and
more importantly, was a literary adviser to Duke Humphrey of Gloucester,
brother to King Henry V, who became the first English patron of humanism.
Gloucester brought an Italian rhetorician into his household, and he collected
a remarkable library, including all the major humanist texts, many of which
he later presented to Oxford University. Oxford and Cambridge also served
as the home for Italian humanist scholars in the later fifteenth century. The
Milanese scholar Stefano Surigone (ft. 1430-80), taught grammar and rheto-
ric at Oxford between 1454 and 1471, and Cornelio Vitelli (c.1450-1500)
became the first professor of Greek at an English university, coming to teach
at New College, Oxford in the 1470s. The Italian humanist Lorenzo da
Savona taught at Cambridge in the 1470s, and published a handbook on
rhetoric in 1478, which went into two printings by the end of the century.
And Caio Auberino (fl. 1450-1500) became official professor of rhetoric at
Cambridge, and taught Latin literature there in the 1480s.
Humanism also came to northern Europe because many young scholars,
often inspired by Italian professors in their country, travelled to Italy to learn
the new humanism at its source. Thus, Robert Gaguin (1435-1501), after
being converted to humanism by the lectures of Gregorio da Tiferna, paid
two extended visits to Italy in the late 1460s, and returned to become a
distinguished French humanist at the Sorbonne in 1473, where he lectured on
rhetoric and Latin literature, translated Livy, and published a treatise on Latin
verse and the first history of France to be written in full rhetorical style. From
England came William Grocyn (c.1449-1519), a student of Vitelli at Oxford,
who studied humanism in Florence in the late 1480s. Grocyn returned to
Oxford to become its first professor of Greek in 1491. William Latimer
(c. 1460-1545), another young Oxford student, accompanied his friend Grocyn
on his trip to Italy, and then went to the University of Padua to perfect his
Greek studies. Soon after Grocyn's initial Oxford post, Latimer was ap-
pointed teacher at Magdalen College, Oxford, inaugurating Magdalen as a
centre of humanist studies.
196 Economic thought before Adam Smith

The most eminent of the Oxford travellers to Italy was John Colet (c. 1467-
1519), a student of Grocyn at Oxford, who spent the years 1493 to 1496 in
Italy. On his return from Italy, Colet, too, was appointed a professor at
Oxford, and he delivered before the entire university a famous series of
lectures on the Epistles of St Paul from 1498 to 1499.

6.6 Botero and the spread of Machiavellianism

The northern humanists, along with the Italians, were staunch believers in the
necessity for the prince to practise the Christian virtues of honesty and
justice. At about the same time that Machiavelli was writing his defence of
the new pragmatic morality in The Prince, the greatest humanist of the age
was penning a famous advice-book to princes, sternly reiterating the Chris-
tian virtues. Desiderius Erasmus (c.1466-1536), a Dutch Augustinian canon
persuaded to study theology by John Colet, dedicated his account of The
Education of a Christian Prince to the future Emperor Charles V in 1516.
While Old Nick was proclaiming that no consideration must stand in the way
of maintaining the ruler in state power, Erasmus warned the prince that he
must never do anything, regardless of his motives, which may harm the cause
of justice.
Machiavelli's Prince was not printed until 1532, and after that, as we have
noted, a storm of attack on 'Machiavel' proceeded throughout Europe. In
England the favourite term for Machiavelli was 'the politic atheist'. Thus,
one James Hull wrote a book on Machiavelli in 1602, entitled The Unmask-
ing of the Politic Atheist. The northern humanists generally took the same
position, defending the focus of traditional political philosophy on justice
and honesty and attacking the overriding concern of the new theorists with
what one Machiavellian aptly termed the ';reason of state' (ragione di stato).
Thus, Cardinal Reginald Pole (1500-58), one of the champions of English
Catholicism as against the Henrician Reformation, and a distinguished hu-
manist, attacked Machiavelli's political theory in 1539, in his Apology to
Charles V, as destroying all the virtues. Roger Ascham (1515-68), another
leading humanist and a long-time tutor to Queen Elizabeth in Greek and
Latin, commented in horror in his Report and Discourse of the Affairs and
State of Germany that Machiavelli taught that one may 'think, say and do
whatever may serve best for profit and pleasure' .
Machiavelli also proved to be grist for the Huguenots' mill during the
French religious war of the 1570s. The Huguenots attributed the St
Bartholomew's Day Massacre of 1572 to the wicked designs of the Queen
Mother, Catherine de Medici, daughter of the selfsame Lorenzo the Magnifi-
cent to whom Machiavelli had dedicated The Prince. The Huguenots attrib-
uted the massacre to the philosophical outlook of Machiavelli. Thus The
Awakener continually denounced the 'pernicious heresy' of Machiavelli, and
Absolutist thought in Italy and France 197

asserted that the king 'was actually persuaded by the doctrines of Machiavelli'
to try to eradicate the Huguenots. Another tract, The Alarm Bell (1577),
maintained that Catherine had deliberately trained her son in the doctrines of
'the atheist Machiavelli', thereby instructing the young king 'in the precepts
most suitable for a tyrant'. To other Huguenots Machiavelli was a preceptor
in the 'science of cheating', a 'science' imported by Italians such as Catherine
into France.
The outstanding example of the genre of anti-Machiavellian tracts was the
Anti-Machiavel of Innocent Gentillet (c.1535-1595), published in 1576.
Gentillet was a French Huguenot who fled to Geneva after the massacre of St
Bartholomew. Machiavelli, he pointed out, was essentially a satanic writer of
handbooks on 'how to become a complete tyrant' .
But still the seductive nature of the new morality, of the justifying of evil
means by the allegedly overriding end of maintaining and advancing state
power, began to take hold among various writers. In Italy, a group of
Machiavellians appeared during the sixteenth century, headed by Giovanni
Botero (1540-1617), and his treatise of 1589, The Reason of State.
Botero was a leading humanist from Piedmont who joined the Jesuit Order.
It is indicative of the decay of scholasticism in Italy in this period that this
proponent of 'reason of state' and hence opponent of natural law ethics in
political life should have been a member of the great Jesuit Order. Since
Machiavelli was scarcely popular in Europe, especially in Catholic circles,
Botero took care to attack Machiavelli explicitly and prO-forma. But that was
merely a ritualistic cover for Botero's adoption of the essence of Machiavel-
lian thought. While beginning by paying lip service to the importance of the
prince's cleaving to justice, Botero quickly goes on to justify political pru-
dence as crucial to all government, then defines the essence of prudence that
'in the decisions made by princes, interest will always override every other
argument'; all other considerations, such as friendship, treaties or other com-
mitments must go by the board. The overall view of Botero is that a prince
must be guided primarily by 'reason of state', and that actions so guided
'cannot be considered in the light of ordinary reason'. The morality and
justification for actions of the prince is diametrically opposed to the princi-
ples that must guide the ordinary citizen.
Botero's work touched off a raft of similar works in Italy over the next 40
years, all of which had the same title, The Reason of State.
In addition to being a leading theorist of political pragmatism and reason
of state, Giovanni Botero has the notable but dubious distinction of being the
first 'Malthusian', the first bitter complainer about the alleged evils of popu-
lation growth. In his On the Cause of the Greatness of Cities (1588), trans-
lated into English in 1606, Botero laid out almost the entire thesis of Malthus's
famous essay on population two centuries later. The analysis was, therefore,
J98 Economic thought before Adam Smith

highly mechanistic: human population tends to increase without limit, or

rather the only limit is the maximum possible degree of human fertility. The
means of subsistence, on the contrary, can only be increased slowly. There-
fore, the growth of population always - to use Malthus's famous words -
tends to 'press on the means of subsistence', with the result being ever-
present poverty and starvation. Population growth, then, can only be checked
in two ways. One is the dying of large numbers of people through starvation,
plague, or wars over scarce resources (Malthus's 'positive' check). Second is
the only element of free will or active human response permitted by Botero's
theory: that starvation and poverty may induce some people to abstain from
marriage and procreation (Malthus's 'preventive' or 'negative' check).
In an epoch marked by rising population and rising living standards and
economic growth, Botero's gloom-and-doom about population growth was
hardly likely to fall on friendly ears. Indeed, as we shall see further below,
those seventeenth and eighteenth century theorists who foresaw unlimited
population growth favoured the idea as a spur to prosperity and economic
growth. 5
In any case, whether one draws pessimistic, neutral or optimistic conclu-
sions from the thesis of unlimited population growth, its basic flaw is assum-
ing that people will not react if they see their living standards declining from
bearing large families. Botero (and Malthus after him) indeed gave the case
away by even mentioning 'preventive' checks. For if people will lower the
number of children when faced with absolute destitution, why may they not
lower it long before that? And if so, no such mechanistic tendency can be
Historically, indeed, the facts totally contradict the gloomy Malthusian
forecasts. Population only tends to rise in response to greater economic
growth and prosperity and the consequent rise in living standards, so that
population and standards of living tend to move together, rather than in
diametric opposition. This rise in population generally comes in response to
falling death rates caused by the better nutrition, sanitation, and medical care
attendant on higher living standards. The dramatic declines in death rates
lead to accelerated population growth (roughly measured by birth rate minus
death rate). After a few generations, the birth rate usually falls, as people act
to preserve their higher living standards, so that population growth then
levels off.
The main defect of the Botero-Malthus doctrine of population is that it
assumes that two entities - population and the means of subsistence (or
production, or living standards) - operate under laws that are totally inde-
pendent of each other. And yet, as we have seen, population growth may be
highly responsive to changes in production. Similarly, the reverse can be
true. Increases in population may well encourage the growth of investment
Absolutist thought in Italy and France 199

and production, by providing a greater market for more products as well as

more labour to work on these processes. 6 Schumpeter puts the overall point
well in his critique of Malthus: ' ... there is of course no point whatever in
trying to formulate independent "laws" for the behavior of two interdepend-
ent quantities. '7
In England, a leading humanist and colleague of Cardinal Pole in defend-
ing the Catholic Church as against the Anglican reform was Stephen Gardiner
(c.1483-1555), bishop of Winchester. Gardiner, in contrast to Pole, was the
first northern humanist to take a pro-Machiavellian line. Written appropri-
ately enough when he was Lord Chancellor under the despotic Queen Mary
Tudor in the early 1550s, Gardiner's Discourse on the Coming of the English
and Normans to Britain was dedicated to King Philip II of Spain. Written as
an advice-book to King Philip on the eve of his marriage to Queen Mary, the
book counselled the king on how to govern England. Gardiner openly en-
dorsed Machiavelli's view that it was far more important for a prince to
appear virtuous than actually to be so. It is useful, opines Gardiner, for the
prince to appear 'merciful, generous and observant of faith', but any ruler
who really feels bound to actually observe such qualities would come to
more harm than good.
An ardent if implicit disciple of Machiavellism was the prominent late
sixteenth century Belgian classical scholar and humanist Justus Lipsius (1547-
1606). Lipsius had moved from Antwerp to Leyden, in Holland, to avoid the
rigours of the war against Spanish rule. In 1589, in Leyden, Lipsius pub-
lished his Six Books of Politics. The prince, wrote Lipsius, must learn how to
engage in 'profitable deceit', and judiciously be able to 'intermingle that
which is profitable with that which is honest'. Reason of state was again

6.7 Humanism and absolutism in France

Before humanism made its mark in France, political thought was medieval
rather than absolutist. Thus, near the end of his life, the prominent royal
bureaucrat, jurist, and churchman, Claude de Seyssel (c.1450-1520), pub-
lished a treatise on monarchy summing up the post-medievalist perspective
in politics. He wrote The Monarchy of France on the death of King Louis XII
in 1515, and presented it to the new king, Francis 1. The book was published
four years later under the more presumptuous title, The Grand Monarchy of
France, and was reissued often thereafter.
De Seyssel was born in Savoy, trained as a jurist, and served King Charles
VIII and King Louis XII, the latter as member of the Grand Council and on
numerous occasions as ambassador. But despite his long service in the bu-
reaucracy and his great admiration for Louis XII, de Seyssel was a constitu-
tionalist rather than an absolutist. The king, he averred, is indeed absolute
200 Economic thought before Adam Smith

within his own sphere, but that sphere is severely delimited by a network of
rights held by others in accordance with customary, natural, and divine law.
In contrast, the lengthy reign of Francis I (1515-47) saw the beginning of
the triumph of absolutism in French political thought. This new trend was
launched by the leading humanist in France, Guillaume Bude (1467-1540).
A highly erudite classical and legal scholar, Bude travelled in Italy in the
early 1500s, imbibed humanism there, and returned to write a bitter attack on
scholastic jurisprudence in his Annotations on the Pandects in 1508. The
advent of Francis I in 1515 had characteristically contrasting effects on the
veteran de Seyssel and on the younger Bude. De Seyssel wrote his magnum
opus to instruct the young king on the greatness of what he believed to be the
old king's constitutionalist regime. Bude was inspired by the advent of the
new prince to write The Institution of a Prince in 1519, celebrating the king's
potentially absolute greatness and power.
In this French form of advice-book to the king, Bude developed the idea,
then new in France, of the prince as totally and absolutely sovereign, whose
power and every whim must never be limited or questioned. The prince,
intoned Bude, was a quasi-divine person, a man necessarily superior to all
others. Laws that bind the prince's subjects do not bind or apply to him; for
laws apply only to the average and the equal, not to the prince who closely
approaches the perfect ideal of mankind. The prince, in short, was a god
among men and a law unto himself. The monarch, therefore, was super-
human, himself the source and the criterion of all justice.
For Bude, the king's actions are always right because 'the heart of the king
moves by instinct and by impulsion of God, who controls and attracts it
according to his pleasure, to undertake enterprises that are praiseworthy and
honest and useful to his people and himself... '. Ruling by divine right and
inspired directly by God, the king needs only the advice of philosophers -
and it did not take much imagination to see who the great Bude had in mind
as philosophic counsellor to Francis I.
Bude's work was carried on and developed by succeeding decades of
humanists and particularly legists. The French kings were delighted at these
dominant theories of their age, and proceeded happily to put them into
practice. In this they were greatly aided by the absolutist jurists being them-
sel ves top bureaucrats in the service of the king. Two of the leading jurists
wrote in the reign of Francis I: Barthelemy de Chasseneux (1480-1541),
whose Catalogue of the Glory of the World was published in 1529, and
Charles de Grassaille, whose Regale ofFrance was written in 1538. Grassaille
declared that the king of France was God in the flesh, that all his actions were
inspired and brought about by God operating through the person of the king.
The king was therefore God's vicar on earth and a living law. In a sense, then,
Charles de Grassaille said it all: the king is God on earth.
Absolutist thought in Italy and France 201

The sixteenth century French legalists also systematically tore down the
legal rights of all corporations or organizations which, in the Middle Ages,
had stood between the individual and the state. There were no longer any
intermediary or feudal authorities. The king is absolute over these intermedi-
aries, and makes or breaks them at will. Thus, as one historian sums up
Chasseneux's view:

All jurisdiction, said Chasseneux, pertains to the supreme authority of the prince;
no man may have jurisdiction except through the ruler's concession and permis-
sion. The authority to create magistrates thus belongs to the prince alone; all
offices and dignities flow and are derived from him as from a fountain. R

The most important contribution to the tearing down of the intermediary

structures hampering the monarch's absolute rule over his subjects was that
of the greatest jurist of his age, Charles du Moulin. We have already seen du
Moulin's (Molinaeus') critique of the prohibition of usury, in his Treatise on
Contracts and Usury (1546). Far more important was his magnum opus,
Commentaries on the Customs of Paris (1539), a compilation and commen-
tary on customary law in France. This book dealt a lethal blow to the medi-
eval rights and privileges of intermediary orders, and placed virtually all
authority into the hands of the monarch and his state.

6.8 The sceptic as absolutist: Michel de Montaigne

It is a favourite conceit of modern, twentieth century liberals that scepticism,
the attitude that nothing can really be known as the truth, is the best ground-
work for individual liberty. The fanatic, convinced of the certainty of his
views, will trample on the rights of others; the sceptic, convinced of nothing,
will not. But the truth is precisely the opposite: the sceptic has no ground on
which to stand to defend his or others' liberty against assault. Since there will
al ways be men willing to aggress against others for the sake of power or pelf,
the triumph of scepticism means that the victims of aggression will be ren-
dered defenceless against assault. Furthermore, the sceptic being unable to
find any principle for rights or for any social organization, will probably cave
in, albeit with a resigned sigh, to any existing regime of tyranny. Faute de
mieux, he has little else to say or do.
An excellent case in point is one of the great sceptics of the modern world,
the widely read and celebrated sixteenth century French essayist, Michel
Eyquem de Montaigne (1533-92).9 Montaigne was born to a noble family in
the Perigord region of south-western France, near the city of Bordeaux. He
became a judge in the Bordeaux parlement in 1557, at the age of 24, as his
father had been before him. He also joined at the parlement an uncle (his
father's brother), a first cousin of his mother, and a brother-in-law. Remain-
ing in the parlement for 13 years, and then denied promotion to the upper
202 Economic thought before Adam Smith

chamber of that body, Montaigne retired to his rural chateau in 1570 to write
his famous Essays. There he remained, except for a four-year stint as mayor
of Bordeaux in the early 1580s. A leading humanist, Montaigne virtually
created the essay form in France. He started writing these brief essays in the
early 1570s, and published the first two volumes in 1580. The third book of
essays was published in 1588, and all three volumes were posthumously
published seven years later.
Though a practising Catholic, Montaigne was a thoroughgoing sceptic.
Man can know nothing, his reason being insufficient to arrive either at a
natural law ethics or a firm theology. As Montaigne put it: 'reason does
nothing but go astray in everything, and especially when it meddles with
di vine things'. And for a while, Montaigne adopted as his official motto the
query, 'What do I know?'
If Montaigne knew nothing, he could scarcely know enough to advocate
setting one's face against the burgeoning abolutist tyranny of his day. On the
contrary, stoic resignation, a submission to the prevailing winds, became the
required way of confronting the public world. Skinner sums up Montaigne's
political counsel, as holding 'that everyone has a duty to submit himself to
the existing order of things, never resisting the prevailing government and
where necessary enduring it with fortitude'.10
In particular, Montaigne, though sceptical about religion itself, cynically
stressed the social importance of everyone outwardly observing the same
religious forms. Above all, France must 'submit completely to the authority
of our [Catholic] ecclesiastical government' .
Submission to constituted authority was, indeed, the key to Montaigne's
political thought. Everyone must remain obedient to the king at all times no
matter how he discharges his obligation to rule. Unable to use reason as a
guide, Montaigne had to fall back on the status quo, on custom and on
tradition. He warned gravely and repeatedly that everyone must 'wholly
follow the accepted fashion and forms', for 'it is the rule of rules, and the
universal law of laws, that each man should observe those of the place he is
in'. Montaigne hailed Plato for wanting to prohibit any citizen from looking
'even into the reason of the civil laws' , for those laws must 'be respected as
divine ordinances'. Although we may wish for different rulers, we 'must
nevertheless obey those that are here'. The finest achievement of the Chris-
tian religion, according to Montaigne, was its insistence on 'obedience to the
magistrates and maintenance of the government' .
Considering Montaigne's fundamental outlook, it is no wonder that he
warmly embraced the Machiavellian concept of 'reason of state'. (May we
say that he held the reason of man to be worthless, but the reason of state to
be overriding?) Characteristically, while Montaigne writes that he personally
likes to keep out of politics and diplomacy because he prefers to avoid lying
Absolutist thought in Italy and France 203

and deceit, he also asserts the necessity of 'lawful vice' in the operations of
government. Deceit in a ruler may be necessary, and furthermore, such vices
are positively needed 'for sewing our society together, as [are] poisons for
the preservation of our health'. Montaigne then goes on to integrate his
defence of deceit in a prince with his seemingly paradoxical defence of
reason of state while having no use for human reason at all. For in following
reason of state, the prince has simply 'abandoned his own reason for a more
universal and powerful reason', and this mystical super-reason has shown
him that an ordinarily evil action needed to be done.
Michel de Montaigne made a notable and highly influential contribution to
mercantilism - the strictly economic aspect of state absolutism - as well.
Although he claimed that he knew nothing, on one thing he certainly asserted
truth, his much vaunted scepticism suddenly vanishing: in what Ludwig von
Mises was later to call the 'Montaigne fallacy', he insisted, as in the title of
his famous Essay Number 22, that 'The Plight of One Man is the Benefit of
Another'. There is the essence of mercantilist theory, in so far as mercantil-
ism has a theory at all; in contrast to the fundamental truth well known to the
scholastics that both parties benefit from an exchange, Montaigne opined that
in a trade, one man can only benefit at the expense of another. By analogy, in
international trade, one nation must benefit at the expense of another. The
implication is that the market is a ravening jungle, so why should not a
Frenchman urge the French state to grab as much from others as it can?
Montaigne developed his theme in Essay 22 in a characteristically worIdly-
wise and cynical manner. He notes that an Athenian once condemned a
funeral director

on the charge that he demanded unreasonable profit, and this profit could not
accrue to him but by the death of a great number of people. This judgment appears
to be ill-grounded, inasmuch as no profit can possibly be made but at the expense
of another, and because by the same rule every kind of gain would have to be

All work is done at the expense of others, and Montaigne correctly notes that
the physician could be condemned in the same way. The same charge could
be levied at the farmer or retailer for 'gaining because of people's hunger',
the tailor for 'profiting because of someone's need for clothing', and so forth.
He concluded broadly that the benefit of anyone entity is necessarily 'the
dissolution and corruption of some other thing'. Unfortunately, of course, he
could not see also that these producers did not create such needs, but instead
were fulfilling them and thereby removing the want and pain of their custom-
ers and adding to their happiness and standard of living. If he had gone that
far, he would have realized the nonsense of his dog-eat-dog, or what would
now be called his 'zero-sum game', view of the marketplace.
204 Economic thought before Adam Smith

6.9 Jean Bodin: apex of absolutist thought in France

While Montaigne paved the way for the dominance of absolutist thought in
France, surely the founder, or at least the locus classicus of sixteenth
century French absolutism was Jean Bodin (1530-96). Born in Angers,
Bodin studied law at the University of Toulouse, where he taught for 12
years. Bodin later went to Paris to become a jurist, and soon became one of
the leading servitors of King Henry III, and one of the leaders of the statist
politique party, which upheld the power of the king as against the princi-
pled militants among the Huguenots on one side, and the Catholic League
on the other.
Bodin's most important work was The Six Books of a Commonwealth (Les
Six livres de la republique) (1576). Perhaps the most massive work on politi-
cal philosophy ever written, the Six Books was certainly the most influential
book on political philosophy in the sixteenth century. In addition to this
work, Bodin published books on money, law, the historical method, natural
science, religion and the occult. Central to Bodin's theory of absolutism,
written in the face of the challenge of Huguenot rebellion, was the notion of
sovereignty: the unchallengeable power of command in the monarch ruling
over the rest of society. Characteristically, Bodin defined sovereignty as 'the
most high, absolute, and perpetual power over the citizens and subjects in a
commonwealth'. Central to sovereignty in Bodin was the sovereign's func-
tion as law-giver to society, and 'the essence of lawmaking was command -
in exercise of will with binding force'.11
Since the sovereign is the maker or creator of the law, he must therefore be
above that law, which applies only to his subjects and not to himself. The
sovereign, then, is a person whose will creates order out of formlessness and
The sovereign, furthermore, must be unitary and indivisible, the locus of
command in society. Bodin explains that 'we see the principal point of
sovereign majesty and absolute power to consist in giving laws to subjects in
general, without their consent'. The sovereign must be above the law that he
creates as well as any customary law or institutions. Bodin urged the sover-
eign prince to follow God's law in framing his edicts, but the important point
was that no human action or institution· could be employed to see that the
prince follows the divine path or to call him to account.
Bodin, however, called upon the prince to rely for advice or counsel on a
small number of wise advisers, men who, allegedly lacking motives of self-
interest, would be able to aid the king in legislating for the public good of the
entire nation. In short, a shall elite of wise men would share in the sovereign
power behind the scenes, while publicly, the sovereign would hand down
decrees as if solely the product of his own will. As Keohane writes, in
Bodin's system 'the monarch's dependence on his counsellors is hidden by
Absolutist thought in Italy and France 205

the impressive and satisfying fiction that the law is handed down by one
benevolent, absolute, superhuman will ... ' .12
It is hardly far-fetched to conclude that Bodin, court politician and jurist,
saw himself as one of the sages running government from behind the scenes.
Plato's ideal of combined philosopher-king had now been transformed into
the more realistic and, for Bodin, more self-serving goal of philosopher
guiding the king. And all this cloaked in the illusory assumption that such a
court philosopher has no self-interest in money or power in his own right.
Bodin also envisaged a broad role for various groups to participate in the
government of the commonwealth, as well as a wide scope for bureaucrats
and administrators. The crucial point is that all be subordinated to the power
of the king.
It is often true that political analysts are at their most acute in revealing the
flaws in systems with which they disagree. Accordingly, one of Bodin's keenest
insights was his examination of the popular democracies of the past. Bodin
points out that 'if we rip up all the popular states that ever were', and closely
examine their real condition, then we shall find that the alleged rule of the
people was always rule by a small oligarchy. Anticipating such perceptive late
nineteenth century theorists of the power elite or ruling class as Robert Michels,
Gaetano Mosca and Vilfredo Pareto, Bodin pointed out that in reality rule is
always exercised by an oligarchy, for whom 'the people serves but for a mask'.
There is a curious lacuna, however, in the agenda of absolutist power
proclaimed by Jean Bodin. That lacuna lies in an area always crucial to the
practical exercise of state power: taxation. We have seen that before the
fourteenth century, French monarchs were expected to live off their own
seigneurial rents and tolls, and that tax levies were only granted begrudgingly
and in emergencies. And while a regular and oppressive system of taxation
was in place in France by the early sixteenth century, even the royal and
absolutist theorists hesitated to grant the monarch the unlimited right to tax.
In the late sixteenth century, both the Huguenots and the Catholic Leaguers
bitterly condemned the arbitrary power of the king to tax as a crime against
society. As a result Bodin and his fellow establishment politiques were reluc-
tant to play into the hands of the king's enemies. Like the French writers
before him, then, Bodin inconsistently upheld the rights of private property,
as well as the invalidity of the king's taxing his subjects without their con-
sent: 'It is not in the power of any prince in the world, at his pleasure to raise
taxes upon the people, no more than to take another man's goods upon
him ... ' Bodin's notion of 'consent', however, was scarcely a thoroughgoing
or radical one; instead, he was content with the existing formal agreement to
taxation by the states-general.
Bodin's own actions as a deputy from the Vermandois at the states-general
meeting at Blois (1576-77) emphatically stressed the limited taxes aspect of
206 Economic thought before Adam Smith

his consistent attitude toward sovereignty. The king had proposed to substi-
tute a graduated income tax on all commoners with no exemptions (what
might now be called 'a flat tax with bumps') for the myriad of different taxes
they then were forced to pay. Curiously enough, this scheme was almost
precisely the one which Bodin himself had publicly advocated a short while
before. But Bodin's opposition to the king's proposal displayed his shrewdly
realistic attitude toward government. He noted 'that the king could not be
trusted when he said this tax would be substituted for the tailles, aides, and
gabelles. Rather, it was much more likely that the king was plotting to make
this an additional tax'.13 Bodin also engaged in a perceptive interest-analysis
of the reason that the Parisian deputies had taken the lead in support of the
new, higher tax. For he showed that the Parisians had not been paid any
interest on their government bonds for a long while, and were hoping that the
higher taxes would allow the king to resume his payments.
Jean Bodin, anxious to prevent the king from launching an all-out war
against the Huguenots, led the estates in blocking not only the single-tax
plan, but also other emergency grants to the king. Bodin pointed out that
'temporary' grants often became permanent. He also warned the king and his
countrymen that 'one cannot find more frequent upsets, seditions, and ruins
of commonwealths than because of excessive tax burdens and imposts'.
Among the absolutist writers following Bodin, the seventeenth century
servitors of the absolute state, all hesitance or piety to the medieval legacy of
strictly limited taxation was destined to disappear. State power, unlimited,
was to be glorified.
In the more narrowly economic sphere of the theory of money, Bodin, as
we have seen above, has long been credited by historians with pioneering the
quantity theory of money (more strictly, the direct influence of the supply of
money on prices) in his Response to the Paradoxes of M. de Malestroit
(1568). Malestroit had attributed the unusual and chronic price increases in
France to debasement, but Bodin pinpointed the cause as the increased sup-
ply of specie from the New World. We have seen, however, that the quantity
theory had been known since the time of the fourteenth century scholastic
Jean Buridan and of Nicolas Copernicus in the early sixteenth century. The
increased specie from the New World was spotted as the cause of price rises a
dozen years earlier than Bodin by the eminent Spanish scholastic Martin de
Azpilcueta Navarrus. As a highly learned scholar, Bodin would certainly
have read Navarrus's treatise, especially since Navarrus had taught at the
University of Toulouse a generation before Bodin came there to study. Bodin's
claim of originality in this analysis should therefore be taken with many
grains of salt.]4
Jean Bodin was also one of the first theorists to point out the influence of
social leaders on demand for goods, and therefore on their price. People, he
Absolutist thought in Italy and France 207

points out, 'esteem and raise in price everything that the great lords like,
though the things in themselves are nor worth that valuation'. Then, a snob
effect takes over, after 'the great lords see that their subjects have an abun-
dance of things that they themselves like'. The lords then 'begin to despise'
these products, and their prices then fall.
Despite his numerous keen economic and political insights, however, Bodin
was ultra-orthodox in his view of usury, ignoring the work of his near-
contemporary Du Moulin as well as the Spanish scholastics. Interest-taking
was prohibited by God, according to Bodin, and that was that.

6.10 After Bodin

Jean Bodin's exaltation of sovereignty struck French political thought like a
thunderclap; here at last was a way to justify and expand the ever-increasing
powers of the Crown. In particular, the new view was adopted and subtly
transformed by writers who were far more absolutist, in practice, than was
Bodin himself. The one element that Bodin's veneration of sovereignty lacked
was the Protestant notion of divine sanction; for to Bodin absolute sover-
eignty was simply a fact of nature. Other politiques, however, soon added the
missing ingredient, since they had long been accustomed to think of rule as
by divine right. The idea of the king's rule being commanded by God was a
familiar one in the sixteenth century; none, however, had extended kingly
rule to the notion of absolute sovereignty created by Bodin.
The most important immediate follower of Bodin was Pierre Gregoire, in
his De republica (1578). The king, for Gregoire, was God's appointed vicar
in the temporal sphere, and his rule was under the constant influence of God's
will. The king's command was therefore equivalent to God's, and was equally
owed absolute obedience by his subjects. 'The prince is the image of God, in
power and in authority' , wrote Gregoire.
Bodin and others had still retained the idea that true justice was a concept
separate and apart from the king's edicts, so that the king's actions could well
be unjust; no one, however, was allowed to obstruct or disobey such actions.
But in the doctrine of the gallicized Scot Adam Blackwood, the two concepts
become almost totally conflated (Adversus Georgii Buchanani, 1581). The
will of the prince, for Blackwood, becomes just virtually by definition. The
king was necessarily just and virtually superhuman, a living law unto him-
self. Indeed, Blackwood carried the glorification of divinely constituted mon-
archy to its apogee, asserting that the very person of the king, and not simply
the authority of his office, was divine, and that he was in a literal sense a god
on earth.
As its title indicates, Blackwood's work was written as an attack on his
fellow gallicized Scot, the radical Calvinist George Buchanan. Buchanan's
libertarian and pro-tyrannicide doctrine had rested, unsurprisingly, on the
208 Economic thought before Adam Smith

concept of natural law. And so Blackwood denounced natural law as a source

of anarchistic liberty, prompting in its believers an aversion to law and to
political authority. Against natural law, Blackwood upheld the jus gentium,
the positive law of nations, as the explanation and justification of political
It is not surprising that the consensual limit on taxation, still active in
Bodin's thought, should drop out immediately upon the fusion of absolute
sovereignty and divine right. The leader of that fusion, Pierre Gregoire,
introduced erasing the tax limit as well. Whereas even Bodin had conceded
that natural law established a right to private property, with Gregoire natural
law only ratifies the unchecked power of the king. For Gregoire, the king had
the unlimited prerogative to levy taxes, since the good of the state is higher
than the property rights of the individual. Indeed, the king possessed by
divine grant an absolute authority over all the persons and properties of his
subjects. To avoid confusion, therefore, or any implication of consent to
taxation, the states-general should be abolished altogether.
It was, indeed, Adam Blackwood who uniquely and radically reached the
clarity of consistency on the ruler's right to tax. For if property rights are
important, and the king has the absolute right to tax or otherwise seize private
property at will, then this must mean that' All lands were originally held by
the king and were granted by him to others ...And the granting of fiefs by the
king was but a partial transfer~ all lands owed tribute to him and remained
subject to his authority' .15 In short, in an odd version of the state of nature,
only the king had original or continuing property rights; all other seeming
property rights are simply allowances by the king, temporary possessions
that are regulatable by the king and revocable by him at any time.
Whereas Adam Blackwood had been a lone extremist in absolutism in the
early 1580s, a host of royalist pamphleteers were soon adopting his views.
From approximately 1585 to Henry IV's conversion to Catholicism eight
years later, the royal power was beleaguered and subordinate to the strength
of the militant Catholic League. The royalist writers therefore felt obliged to
push the divine sanction of the sovereign to the maximum, in order to elimi-
nate any power of the pope in France, and to counsel absolute obedience to
any legitimate sovereign, regardless of his religion. The king had absolute
authority over the Catholic Church in France as well as all other institutions.
Thus, Fran90is Le Jay (On the Dignity of Kings, 1589) asserted that kings
were established for the honour and service of God, and that subjects should
obey their rulers as they would a god on earth. Louis Servin, in his Vindiciae
(1590), trumpeted of Henry IV, then still a Huguenot, that 'God is our king~
by Him he lives and flourishes, and by His spirit is he animated'. Probably
the most extreme version of this doctrine was expressed in a speech of
Jacques de La Guesle, procurator general of France, asking the parlement to
Absolutist thought in Italy and France 209

condemn a priest who had upheld the supreme temporal authority of the

Sirs, the authority of the king is sacrosanct, ordained by God, the principal work
of His Providence, the masterpeice of His hands, the image of His sublime
Majesty and proportionate to His immense grandeur, so as to bear comparison of
the creature with the Creator. .. For, just as God is by nature the first King and
Prince, so is the King, by creation and imitation, God of all on earth ... 16

The subjects, according to these Henrician absolutists, owed this quasi-

divine figure absolute obedience. These writers developed the Blackwoodian
theme that the king's decrees were ipso facto and necessarily just. Jacques
Hurault, in his On the Offices of State (1588), developed this doctrine most
clearly. Hurault explained that the prince was guided by the hand of God and
therefore could do no wrong. The ruler was not simply a man but justice
itself, which he dispensed according to the will of God. The constitution of
the state was subordinated, in Hurault, to two simple points: the prince's
necessarily just commands, and the obedience of his subjects. The ruler
commands and the subjects obey. Period. Furthermore, in reaction to the
Leaguer emphasis on the people, the royalists counselled the king not to
allow naturally restless subjects much liberty.
Since the politiques and Henry IV triumphed shortly thereafter, these ultra-
absolutist views of the embattled Henrician pamphleteers inspired and were
followed fairly completely by the dominant theoreticians of the great age of
absolutism: seventeenth century France.

6.11 Notes
l.Joseph A. Schumpeter, History (~l Economic Analysis (New York: Oxford University
Press, 1954), pp. 163-4.
2. Quentin Skinner, The Foundations (~l Modern Political Thought: vhl. I, The Renaissance
(Cambridge: Cambridge University Press, 1978), p. 138n.
3. Ibid., p. 138.
4. Ibid., pp. 134-5.
5. We shall see in a later volume that the renowned left Keynesian Alvin Henry Hansen, in
his famous 'stagnation' thesis of the late 1930s, forecast permanent stagnation for the
American economy partially because of the recent decline in population growth. We shall
see further that Hansen developed this doctrine as the logical outcome of a rigid Walrasian
framework. This of course is in stark contrast to the pro-'zero population growth' hysteria
of the left liberals of the 1970s.
6. Thus, for the world of the twentieth century, P.T. Bauer notes: 'Indeed, over large parts of
the Third World the extreme sparseness of the population presents obstacles to the eco-
nomic advance of enterprising people, obstacles which are more effective than those
supposedly presented by population pressure. A sparse population precludes the construc-
tion of transport facilities and communications, and thus retards the spread of new ideas
and methods. In this way, it circumscribes the scope for enterprise.' P.T. Bauer, Equality,
the Third World and Economic Delusion (Cambridge, Mass.: Harvard University Press,
7. Schumpeter, op. cit., note 1, p. 579.
210 Economic thought before Adam Smith

8. William Farr Church, Constitutional Thought in Sixteenth-Century France: A Study in the

Evolution (~lIdeas (1941, New York: Octagon Books, 1969), p. 53.
9. Pronounced Mon-TAN-ye rather than the usual Mon-TAYN, for he came from an area of
south-western France where langue d'oc (Occitan) was spoken rather than the northern
(essentially the area around Paris) langue d'oeil or d'oui (French). The southern regions
had only been conquered by France in the course of a savage extirpation of their religion
(Albigensian) and culture during the thirteenth century. The area around Bordeaux, fur-
thermore, had been acquired by England and governed by the English for three centuries,
from the mid-twelfth to the mid-fifteenth. When the French captured Bordeaux and the
surrounding region in the 1450s, they proceeded to extirpate the Gascon (which includes
Perigord) wing of Occitan as a written language, a language that the English had left
alone. Thus, in 1539, a few years after Montaigne's birth, the French outlawed the use of
Occitan as an administrative, written language, in the Edict of Villers-Cotterets. People
like Montaigne were thus induced to write in the official French language, and while he
was always loyal to the French Crown, Montaigne still considered himself far more of a
Gascon than a Frenchman.
10. Skinner, op. cit., note 2, p. 279.
II. Nannerl O. Keohane, Philosophy and the State in France: the Renaissance to the Enlight-
enment (Princeton, NJ: Princeton University Press, 1980), p. 70.
12. Ibid., p. 75.
13. Martin Wolfe, The Fiscal System of Renaissance France (New Haven: Yale University
Press, 1972), p. 162.
14. In 1907, a descendant of Bodin asserted that the first writer to explain the influence of
specie from the New World on prices in Europe was the Frenchman Noel du Fail, in 1548.
15. William Farr Church, Constitutional Thought in Sixteenth Century France: A Study in the
Evolution (~tldeas (1941, New York: Octagon Books, 1969), p. 259.
16. My translation from the French. See ibid., pp. 266n-67n.
7 Mercantilism: serving the absolute state

7.1 Mercantilism as the economic aspect of absolutism 213

7.2 Mercantilism in Spain 214
7.3 Mercantilism and Colbertism in France 216
7.4 Mercantilism in England: textiles and monopolies 221
7.5 Enserfdom in eastern Europe 226
7.6 Mercantilism and inflation 227
7.7 Notes 230

Mercantilism: serving the absolute state 213

7.1 Mercantilism as the economic aspect of absolutism

By the beginning of the seventeenth century, royal absolutism had emerged
victorious all over Europe. But a king (or, in the case of the Italian city-states,
some lesser prince or ruler) cannot rule all by himself. He must rule through a
hierarchical bureaucracy.. And so the rule of absolutism was created through a
series of alliances between the king, his nobles (who were mainly large feudal
or post-feudal landlords), and various segments of large-scale merchants or
traders. 'Mercantilism' is the name given by late nineteenth century historians
to the politico-economic system of the absolute state from approximately the
sixteenth to the eighteenth centuries. Mercantilism has been called by various
historians or observers a 'system of Power or State-building' (Eli Heckscher), a
system of systematic state privilege, particularly in restricting imports or subsi-
dizing exports (Adam Smith), or a faulty set of economic theories, including
protectionism and the alleged necessity for piling up bullion in a country. In fact,
mercantilism was all of these things; it was a comprehensive system of state-
building, state privilege, and what might be called 'state monopoly capitalism'.
As the economic aspect of state absolutism, mercantilism was of necessity a
system of state-building, of Big Government, of heavy royal expenditure, of
high taxes, of (especially after the late seventeenth century) inflation and deficit
finance, of war, imperialism, and the aggrandizing of the nation-state. In short,
a politico-economic system very like that of the present day, with the unimpor-
tant exception that now large-scale industry rather than mercantile commerce is
the main focus of the economy. But state absolutism means that the state must
purchase and maintain allies among powerful groups in the economy, and it
also provides a cockpit for lobbying for special privilege among such groups.
Jacob Viner put the case well:

The laws and proclamations were not all, as some modern admirers of the virtues
of mercantilism would have us believe, the outcome of a noble zeal for a strong
and glorious nation, directed against the selfishness of the profit-seeking mer-
chant, but were the product of conflicting interests of varying degrees of respect-
ability. Each group, economic, social, or religious, pressed constantly for legisla-
tion in conformity with its special interest. The fiscal needs of the crown were
always an important and generally a determining influence on the course of trade
legislation. Diplomatic considerations also played their part in influencing legisla-
tion, as did the desire of the crown to award special privileges, con amore, to its
favorites, or to sell them, or to be bribed into giving them, to the highest bidders. 1

In the area of state absolutism, grants of special privilege included the

creation by grant or sale of privileged 'monopolies', i.e. the exclusive right
granted by the Crown to produce or sell a given product or trade in a certain
area. These 'patents of monopoly' were either sold or granted to allies of the
Crown, or to those groups of merchants who would assist the king in the
collection of taxes. The grants were either for trade in a certain region, such
214 Economic thought before Adam Smith

as the various East India companies, which acquired the monopoly right in
each country to trade with the Far East, or were internal - such as the grant of
a monopoly to one person to manufacture playing cards in England. The
result was to privilege one set of businessmen at the expense of their poten-
tial competitors and of the mass of English consumers. Or, the state would
cartellize craft production and industry and cement alliances by compelling
all producers to join and obey the orders of privileged urban guilds.
It should be noted that the most prominent aspects of mercantilist policy -
taxing or prohibiting imports or subsidizing exports - were part and parcel of
this system of state monopoly privilege. Imports were subject to prohibition
or protective tariff in order to confer privilege on domestic merchants or
craftsmen; exports were subsidized for similar reasons. The focus in examin-
ing. mercantilist thinkers and writers should not be the fallacies of their
alleged economic 'theories'. Theory was the last consideration in their minds.
They were, as Schumpeter called them, 'consultant administrators and pam-
phleteers' - to which should be added lobbyists. Their 'theories' were any
propaganda arguments, however faulty or contradictory, that could win them
a slice of boodle from the state apparatus.
As Viner wrote:

The mercantilist literature... consisted in the main of writings by or on behalf of

'merchants' or businessmen, who had the usual capacity for identifying their own
with the national welfare ...The great bulk of the mercantilist literature consisted
of tracts which were partly or wholly, frankly or disguisedly, special pleas for
special economic interests. Freedom for themselves, restrictions for others, such
was the essence of the usual program of legislation of the mercantilist tracts of
merchant authorship. 2

7.2 Mercantilism in Spain

The seeming prosperity and glittering power of Spain in the sixteenth century
proved a sham and an illusion in the long run. For it was fuelled almost
completely by the influx of silver and gold from the Spanish colonies in the
New World. In the short run, the influx of bullion provided a means by which
the Spanish could purchase and enjoy the products of the rest of Europe and
Asia; but in the long run price inflation wiped out this temporary advantage.
The result was that when the influx of specie dried up, in the seventeenth
century, little or nothing remained. Not only that: the bullion prosperity
induced people and resources to move to southern Spain, particularly the port
of Seville, where the new specie entered Europe. The result was malinvestment
in Seville and the south of Spain, offset by the crippling of potential eco-
nomic growth in the north.
But that was not all. At the end of the fifteenth century, the Spanish Crown
cartellized the developing and promising Castilian textile industry by passing
Mercantilism: serving the absolute state 215

over 100 laws designed to freeze the industry at the current level of develop-
ment. This freeze crippled the protected Castilian cloth industry and de-
stroyed its efficiency in the long run, so that it could not become competitive
in European markets.
Furthermore, royal action also managed to destroy the flourishing Spanish
silk industry, which centred in southern Spain at Granada. Unfortunately,
Granada was still a centre of Muslim or Moorish population, and so a series
of vindictive acts by the Spanish Crown brought the silk industry to its
virtual demise. First, several edicts drastically limited the domestic use and
consumption of silk. Second, silks in the 1550s were prohibited from being
exported, and a tremendous increase in taxes on the silk industry of Granada
after 1561 finished the job.
Spanish agriculture in the sixteenth century was also crippled and laid
waste by government intervention. The Castilian Crown had long made an
alliance with the Mesta, the guild of sheep farmers, who received special
privileges in return for heavy tax contributions to the monarchy. In the 1480s
and 1490s, enclosures that had been made in previous years for grain farming
were all disallowed, and sheepwalks (caiiadas) were greatly expanded by
government decree at the expense of the lands of grain farmers. The grain
farmers were also hobbled by special legislation passed on behalf of the
carters' guild - roads being in all countries special favourites for military
purposes. Carters were specially allowed free passage on all local roads, and
heavy taxes were levied on grain farmers to build and maintain the roads
benefiting the carters.
Grain prices rose throughout Europe beginning in the early sixteenth cen-
tury. The Spanish Crown, worried that the rising prices might induce a shift
of land from sheep to grain, levied maximum price control on grain, while
landlords were allowed unilaterally to rescind leases and charge higher rates
to grain farmers. The result of the consequent cost-price squeeze was mas-
sive farm bankruptcies, rural depopulation, and the shift of farmers to the
towns or the military. The bizarre result was that, by the end of the sixteenth
century, Castile suffered from periodic famines because imported Baltic grain
could not easily be moved to the interior of Spain, while at the same time
one-third of Castilian farm land had become uncultivated waste.
Meanwhile, shepherding, so heavily privileged by the Spanish Crown,
flourished for the first half of the sixteenth century, but soon fell victim to
financial and market dislocations. As a result, Spanish shepherding fell into a
sharp decline.
Heavy royal expenditures and taxes on the middle classes also crippled the
Spanish economy as a whole, and huge deficits misallocated capital. Three
massive defaults by the Spanish king, Philip II - in 1557, 1575 and 1596 -
destroyed capital and led to large-scale bankruptcies and credit stringencies
2 J6 Economic thought before Adam Smith

in France and in Antwerp. The resultant failure to pay Spanish imperial

troops in the Netherlands in 1575 led to a thoroughgoing sack of Antwerp by
mutinying troops the following year in an orgy of looting and rapine known
as the 'Spanish Fury'. The name stuck even though these were largely Ger-
man mercenaries.
The once free and enormously prosperous city of Antwerp was brought to
its knees by a series of statist measures during the late sixteenth century. In
addition to the defaults, the major problem was a massive attempt by the
Spanish king, Philip II, to hold on to the Netherlands and to stamp out the
Protestant and Anabaptist heresies. In 1562, the Spanish king forcibly dosed
Antwerp to its chief import - English woollen broadcloths. And, when the
notorious duke of Alva assumed the governorship of the Netherlands in 1567,
he instituted repression in the form of a 'Council of Blood', which had the
power to torture, kill, and confiscate the property of heretics. Alva also levied
a heavy value-added tax of 10 per cent, the alcabala, which served to cripple
the sophisticated and interrelated Netherlands economy. Many skilled wool-
len craftsmen fled to a hospitable home in England.
Finally, the breakaway of the Dutch from Spain in the 1580s, and another
Spanish royal default in 1607, led to a treaty with the Dutch two years later
which finished Antwerp by cutting off its access to the sea and to the mouth
of the River ScheIdt, which was confirmed to be in Dutch hands. From then
on, for the remainder of the seventeenth century, decentralized and free
market Holland, and in particular the city of Amsterdam, replaced Flanders
and Antwerp as the main commercial and financial centre in Europe.

7.3 Mercantilism and Colbertism in France

In France, which was to become in the seventeenth century the home par
excellence of the despotic nation-state, the promising cloth trade and other
commerce and industry in Lyons and the Languedoc region in the south were
crippled by the devastating religious wars in the last four decades of the
sixteenth century. In addition to the devastation and the killing and emigra-
tion of skilled Huguenot craftsmen to England, high taxes to finance the war
served to cripple French economic growth. Then, the politique party, riding
to power on the promise of ending religious strife, ushered in the unchecked
reign of royal absolutism.
Crippling regulation of French industry had begun in the late fifteenth
century, when the king issued scores of guild charters, conferring the power
to control and to set standards of quality in the different occupations upon
urban guilds and their officials. The Crown conferred cartellizing privileges
on the guilds while levying taxes upon them in exchange. A major reason
why Lyons had flourished during the sixteenth century was that it was granted
a special exemption from guild rule and guild restrictions.
Mercantilism: serving the absolute state 217

By the end of the sixteenth century and the religious wars, the old regula-
tions were still in place, ready to be enforced. The new absolute monarchy
was ready to enforce them and carry them further. Thus, in 1581, King Henry
III ordered all the artisans of France to join and group themselves into guilds,
whose orders were to be enforced. All except Parisian and Lyonnaise crafts-
men were forced to confine their activity to their current towns; in that way,
mobility in French industry was brought to an end. In 1597, Henry IV re-
enacted and strengthened these laws, and proceeded to enforce them thor-
The result of this network of restriction was the total crippling of economic
and industrial growth in France. The typical ploy of preserving 'standards of
quality' meant that competition was hobbled, production and imports limited,
and prices kept high. It meant, in short, that consumers were not allowed the
option of paying less money for lower-quality products. State-privileged
monopolies grew as well, with similar effects; and upon the guilds and the
monopolies the state levied increasing and stifling taxes. Growing inspection
fees for quality also exacted a great burden on the French economy. Further-
more, luxury production was particularly subsidized, and the profits of ex-
panding industries diverted to subsidize the weak. Capital accumulation was
thereby slowed and the growth of promising and strong industries crippled.
The subsidizing and privileging of luxury industries meant a shift of re-
sources away from cost-cutting innovations in new mass-production indus-
tries, and towards such areas of high-cost craftsmanship as glass and tapes-
The increasingly powerful French monarchy and aristocracy were large
consumers of luxury goods and were therefore particularly interested in
fostering them and maintaining their quality. Price was no great object since
the monarchy and nobility lived off compulsory levies in any case. Thus, in
May 1665, the king established monopoly privileges for a group of French
lace manufacturers, using the transparently canting argument that this was
done to prevent 'the export of money and to give employment to the people'.
Actually, the point was to prohibit anyone other than the privileged licensees
from making lace, in return for hefty fees paid to the Crown. Domestic
cartels are worthless if the consumer is allowed to buy cheaper substitutes
from abroad, and so protective tariffs were levied on imported lace. But
apparently smuggling abounded, and so in 1667, the government made en-
forcement easier by prohibiting all foreign lace whatsoever. In addition, to
prevent unlicensed competition, it was necessary for the French Crown to
prohibit any lace work at home, and to force all lace work to occur at fixed,
visible points of manufacture. Thus, as the finance and commerce minister
and general economic czar Jean-Baptiste Colbert wrote to a government lace
supervisor: 'I beg you to note with care that no girl must be allowed to work
218 Economic thought before Adam Smith

at the home of her parents and that you must oblige them all to go to the
house of the manufactures ... '
Perhaps the most important of the numerous mercantile restrictions on the
French economy imposed in the seventeenth century was the enforcing of
'quality' standards on production and trade. This tended to mean a freezing of
the French economy at the level of the early or mid-seventeenth century. That
coerced freeze effectively hobbled or even prevented the innovation - new
products, new technologies, new methods of handling production and ex-
change - so necessary to economic and industrial development. One example
was the loom, invented in the early seventeenth century, at first used principally
for the production of the luxury item, silk stockings. When looms began to be
applied to relatively mass-consumption woollen and linen goods, the hand-
knitters balked at the efficient competition, and persuaded Colbert, in 1680, to
outlaw the use of the loom on any article except silk. Fortunately, in the case of
the loom, the excluded woollen and linen manufacturers were politically pow-
erful enough to get the prohibition repealed four years later, and to get them-
selves included in the protectionistlcartellist system of advantage.
All these tendencies of French mercantilism reached a climax in the era of
Jean-Baptiste Colbert (1619-83), so much so that he gave the name
Colbertisme to the most hypertrophied embodiment of mercantilism. The son
of a merchant born at Reims, Colbert early in life joined the French central
bureaucracy. By 1651, he had become a leading bureaucrat in the service of
the Crown, and from 1661 to his death 22 year later, Colbert was the virtual
economic czar - absorbing such offices as superintendent of finance, of
commerce, and secretary of state - under the great Sun King, that epitome of
absolutist despotism, Louis XIV.
Colbert engaged in a virtual orgy of grants of monopoly, subsidies of
luxury, and cartellizing privilege, and built up a mighty system of central
bureaucracy, of officials known as intendants, to enforce the network of
controls and regulations. He also created a formidable system of inspections,
marks and measurements to be able to identify all those straying from the
detailed list of state regulations. The intendants employed a network of spies
and informers to ferret out all violations of the cartel restrictions and regula-
tions. In the classic mode of spies everywhere, they also spied on each other,
including the intendants themselves. Penalties for violations ranged from
confiscation and destruction of the 'inferior' production, to heavy fines,
public mockery, and deprivation of one's licence to stay in business. As the
major historian of mercantilism summed up French enforcement: 'No meas-
ure of control was considered too severe where it served to secure the great-
est possible respect for the regulations.' 3
Two of the most extreme examples of the suppression of innovation in
France occurred shortly after the death of Colbert during the lengthy reign of
Mercantilism: serving the absolute state 219

Louis XIV. Button-making in France had been controlled by various guilds,

depending on the material used, the most important part belonging to the
cord- and button-makers' guild, who made cord buttons by hand. By the
1690s, tailors and dealers launched the innovation of weaving buttons from
the material used in the garment. The outrage of the inefficient hand-button-
makers brought the state leaping to their defence. In the late 1690s, fines
were imposed on the production, sale, and even the wearing of the new
buttons, and the fines were continually increased. The local guild wardens
even obtained the right to search people's houses and to arrest anyone in the
street who wore the evil and illegal buttons. In a few years, however, the state
and the hand-button-makers had to give up the fight, since everyone in
France was using the new buttons.
More important in stunting France's industrial growth was the disastrous
prohibition of the popular new cloth, printed calicoes. Cotton textiles were
not yet of supreme importance in this era, but cottons were to be the spark of
the Industrial Revolution in eighteenth century England. France's strictly
enforced policy made sure that cottons would not be flourishing there.
The new cloth, printed calicoes, began to be imported from India in the
1660s, and became highly popular, useful for an inexpensive mass market, as
well as for high fashion. As a result, calico printing was launched in France.
By the 1680s, the indignant woollen, cloth, silk and linen industries all
complained to the state of 'unfair competition' by the highly popular upstart.
The printed colours were readily outcompeting the older cloths. And so the
French state responded in 1686 by total prohibition of printed calicoes: their
import or their domestic production. In 1700, the French government went all
the way: an absolute ban on every aspect of calicoes including their use in
consumption. Government spies had a hysterical field day: 'peering into
coaches and private houses and reporting that the governess of the Marquis
de Cormoy had been seen at her window clothed in calico of a white back-
ground with big red flowers, almost new, or that the wife of a lemonade-seller
had been seen in her shop in a casquin of calico'.4 Literally thousands of
Frenchmen died in the calico struggles, either being executed for wearing
calicoes or in armed raids against calico-users.
Calicoes were so popular, however, especially among French ladies, that the
fight was eventually lost, even though the prohibition stayed on the books until
the late eighteenth century. The smuggling of calicoes simply could not be
stopped. But it was of course easier to enforce the prohibition against domestic
calico manufacture than against the entire French consuming population, and
so the result of the near-century of prohibition was to put a total stop to any
domestic calico-printing industry in France. The calico entrepreneurs and skilled
craftsmen, many of them Huguenots oppressed by the French state, emigrated
to Holland and England, strengthening the calico industry in those countries.
220 Economic thought before Adam Smith

Furthermore, pervasive maximum wage controls discouraged workers from

moving or, in particular, entering industry, and tended to keep workers on the
farm. Apprenticeship requirements of three or four years greatly restricted
labour mobility and prevented entrance into crafts. Each master was limited
to one or two apprentices, thereby preventing the growth of any single firm.
Before Colbert, most French revenue came from taxation, but grants of
monopoly proliferated so much during the Colbert regime to try to pay for
swelling expenditures, that monopoly grant revenue came to more than one-
half of all state income.
Most onerous and strictly enforced was the government's salt monopoly.
Salt producers were required to sell all salt produced to certain royal store-
houses at fixed prices. The consumers were then forced to purchase salt and,
to expand state income and deprive smugglers of revenue, to purchase a fixed
amount at four times the free market price and divide it among the inhabit-
Despite the enormous increase in monopoly grant revenue, taxes rose
greatly in France as well. The land tax, or taille reelle, was the single largest
source of revenue for the state, and in the early part of his regime, Colbert
tried to expand the burden of the taille still further. But the taille was ham-
pered by a network of exemptions, especially including all the nobility.
Colbert tried his best to spy on the exempt, to ferret out 'false' nobles, and to
stop the network of bribes of the tax-collectors. An attempt to lower the taille
slightly and greatly to increase the aides - indirect internal taxes at wholesale
and retail, particularly on beverages - came a cropper on the bribery and
corruption of the tax farmers. And then there was the gabelle (tax on salt),
revenue from which rose tenfold in real terms between the early sixteenth
and mid-seventeenth centuries. During the Colbert era, gabelle revenues rose
not so much from an increase in tax rates as from the tightening of enforce-
ment of the existing steep taxes.
The land and consumption taxes fell heavily upon the poor and upon the
middle class, gravely crippling saving and investment, especially, as we have
seen, in the mass-production industries. The parlous state of the French
economy may be seen by the fact that, in 1640, just as King Charles I of
England was facing a successful revolution largely brought about by his
imposition of high taxes, the French Crown was collecting three to four times
as much taxes per capita as did King Charles.
As a result of all these factors, even though the population of France was
six times that of England during the sixteenth century, and its early industrial
development had seemed promising, French absolutism and strictly enforced
mercantilism managed to put that country out of the running as a leading
nation in industrial or economic growth.
Mercantilism: serving the absolute state 221

7.4 Mercantilism in England: textiles and monopolies

It was in the sixteenth century that England began its meteoric rise to the top
of the economic and industrial heap. The English Crown in effect tried its
best to hobble this development by mercantilist laws and regulations, but was
thwarted because for various reasons the interventionist edicts proved unen-
Raw wool had for several centuries been England's most important prod-
uct, and hence its most important export. Wool was shipped largely to Flan-
ders and to Florence to be made into fine cloth. By the early fourteenth
century, the flourishing wool trade had reached a height of an average annual
export of 35 000 sacks. The state naturally then entered the picture, taxing,
regulating and restricting. The principal fiscal weapon to build the nation-
state in England was the 'poundage', a tax on the export of wool and a tariff
on the import of woollen cloth. The poundage kept increasing to pay for
continuing wars. In the 1340s King Edward III granted the monopoly of wool
exporting to small groups of merchants, in return for their agreeing to collect
the wool taxes on the king's behalf. This monopoly grant served to put out of
business Italian and other foreign merchants who had predominated in the
wool export trade.
By the 1350s, however, these monopoly merchants had gone bankrupt, and
King Edward finally resolved the issue by widening the monopoly privilege
and extending it to a group of several hundred called the 'Merchants of the
Staple'. All wool exported had to go through a fixed town under the auspices
of the company of the Staple, and be exported to a fixed point on the
Continent, by the end of the fourteenth century at Calais, then under English
control. The monopoly of the Staple did not apply to Italy, but it did apply to
Flanders, the major place of import for English wool.
The Merchants of the Staple soon proceeded to use their privileged mon-
opoly in the time-honoured manner of all monopolists: to force lower prices
upon English wool growers, and higher prices upon Calais and Flemish
importers. In the short run, this system was quite pleasant for the Staplers,
who were able to more than recoup their payments to the king, but in the long
run the great English wool trade was crippled beyond repair. The artificial
gap between domestic and foreign wool prices discouraged the production of
English wool, while it also injured the demand for wool abroad. By the mid-
fifteenth century, average annual exports of wool had fallen greatly to only
8 000 sacks.
The only benefit to Englishmen from this disastrous policy (apart from the
joint short-term gains to King Edward and to the Staplers) was to give an
unintended boost to the English production of woollen cloth. English cloth-
makers could now benefit from their artificially lower prices of wool in
England, coupled with the artificially high prices of wool abroad. Once
222 Economic thought before Adam Smith

again, the market managed to get a leg-up in its unending, zig-zag struggle
with power. By the mid-fifteenth century fine, expensive, broadcloth 'wool-
lens' were being produced abundantly in England, centring in the West
Country, where swift rivers made water plentiful for fuIling the woven cloth,
and where Bristol could serve as the major port of export and entry.
During the mid-sixteenth century, a new form of woollen cloth manufac-
ture sprang up in England, soon to become dominant in the textile industry.
This was the 'new draperies', or worsteds, cheaper and lighter-weight cloth
that could be exported to warmer climates and far more suitable for dyeing
and decoration, since each individual strand of yarn was now visible in the
cloth. Since the worsted was not fuIled, the draperies did not need to be
situated near running water, and so new textile manufacturers and workshops
sprang up in the countryside - and in new towns such as Norwich and Rye -
all round London. London was the largest market for the cloths, so transpor-
tation costs were now cheaper, and furthermore, the south-east was a centre
for sheep bearing the coarse, long stapled wool particularly suitable for
worsted production. The new rural firms around London were also able to
hire skilled Protestant textile artisans who had fled the religious persecution
in France and the Netherlands. Most important, going to the countryside or to
new towns meant that the expanding and innovating textile industry could
escape from the stifling guild restrictions and frozen technology of the old
Now that over 100 000 cloths were exported annually compared to a few
thousand two centuries earlier, sophisticated production and marketing inno-
vations took place. Establishing a 'putting-out' system, merchants paid arti-
sans by the piece to work on cloth owned by the former. In addition, market-
ing middlemen sprang up, yarn brokers serving as middlemen between spin-
ners and weavers, and drapers specializing in selling the cloth at the end of
the production chain.
Seeing the rise of effective new competition, the older urban and broad-
cloth artisans and manufacturers turned to the state apparatus to try to shackle
the efficient upstarts.
As Professor Miskimin puts it: 'As often happens during an evolutionary
period, the older, vested interests turned to the state for protection against the
innovative elements within the industry and sought regulation that would
preserve their traditional monopoly.' 5
In response, the English government passed the Weavers' Act in 1555,
which drastically limited the number of looms per establishment outside the
towns to only one or two. Numerous exemptions, however, vitiated the effect
of the act, and other statutes placing maximum controls on wages, restricting
competition in order to preserve the old broadcloth industry came to naught
from systemic lack of enforcement. The English government then turned to
Mercantilism: serving the absolute state 223

the alternative of propping up and tightening the urban guild structure to

exclude competition. These measures succeeded, however, only in isolating
and hastening the decay of the old urban broadcloth firms. For the new rural
firms, especially the new draperies, were beyond guild jurisdiction. Queen
Elizabeth then went national, with the Statute of Artificers in 1563, which
placed the nation-state squarely behind guild power. The number of appren-
tices each master could employ was severely limited, a measure calculated to
stifle the growth of anyone firm, and to decisively cartellize the wool indus-
try and cripple competition. The number of years of apprenticeship, before
the apprentice could rise to become a master, was universally extended by the
statute to seven years, and maximum wage rates for apprenticeships were
imposed throughout England. Beneficiaries of the Statute of Artificers were
not only the old, inefficient urban broadcloth guilds, but also the large land-
lords, who had been losing rural workers to the new, high-paying clothing
industry. One announced aim of the Statute of Artificers was compulsory full
employment, with labour directed to work according to a system of 'priori-
ties'; top priority was accorded to the state, which attempted to force workers
to remain in rural and farm work and not leave the farm for glittering
opportunities elsewhere. To enter commercial or professional fields, on the
other hand, required a graded series of qualifications such that the occupa-
tions were happy in having entry restricted by this cartellizing statute, while
the landlords were delighted to have workers forced to remain on the farm at
lower wages than they could achieve elsewhere.
If the Statute of Artificers had been strictly enforced, industrial growth
might have been permanently arrested in England. But fortunately, England
was far more anarchic than France, and the statute was not well enforced,
particularly where it counted, in the new and fast-growing worsted industry.
Not only was the countryside beyond the grasp of the urban guilds and
their nation-state ally, but so too was fast-growing London, where custom
decreed that any guild member could engage in any sort of trade, and no
guild could exercise restrictive control over any line of production.
London as the great export centre for the new draperies - largely to
Antwerp - partially accounted for the enormous growth of this city during
the sixteenth century. London's population grew at three times the rate of
England as a whole over the century, specifically from 30-40 000 at the
beginning of the sixteenth century to a quarter of a million early in the next.
The London merchants were not, however, content with free market devel-
opment, and power began to move in on the market. Specifically, the London
merchants began to reach for export monopoly. In 1486 the City of London
created the Fellowship of the Merchant Adventurers of London, which claimed
exclusive rights to the export of woollens to its members. For provincial
merchants (outside of London) to join required a stiff fee. Eleven years later
224 Economic thought before Adam Smith

the king and parliament decreed that any merchant exporting to the Nether-
lands had to pay a fee to the Merchant Adventurers and obey its restrictionist
The state tightened the monopoly of the Merchant Adventurers in the mid-
sixteenth century. First in 1552, the Hanseatic merchants were deprived of
their ancient rights to export cloth to the Netherlands. Five years later, cus-
toms duties were raised on the import of cloth, thereby conferring more
special privileges on the domestic cloth trade and increasing the financial ties
of the Crown to the cloth merchants. And finally, in 1564, in Queen Eliza-
beth's reign, the Merchant Adventurers were reconstituted under tighter and
more oligarchic control.
In the late sixteenth century, however, the mighty Merchant Adventurers
began to decline. The English war with Spain and the Spanish Netherlands
lost the Adventurers the city of Antwerp, and at the turn of the seventeenth
century, they were formally expelled from Germany. The English monopoly
of woollen exports to the Netherlands and the German coast was finally
abolished after the revolution of 1688.
It is instructive to note what happened to printed calico in England as
compared to the supression of the industry in France. The powerful woollen
industry managed to get the importation of calicoes banned from England in
1700, a decade or so after France, but in this case domestic manufacture was
still permitted. As a result, domestic manufactures of calico spurted ahead,
and when the woollen interests managed to get a prohibition of calico con-
sumption act passed in 1720 (The Calico Act), the domestic calico industry
was already powerful and could continue to export its wares. In the mean-
while, calico smuggling continued, as did domestic use - all stimulated by
the fact that prohibition was not enforced nearly as strictly in England as in
France. Then, in 1735, the English cotton industry won an exemption for the
domestic printing and use of 'fustians', a mixed cotton and linen cloth, which
were the most popular form of calico in England in any case. As a result, the
domestic cotton textile industry was able to grow and flourish in England
throughout the eighteenth century.
Prominent in English mercantilism was the pervasive creation by the Crown
of grants of monopoly privilege: exclusive power to produce and sell in
domestic and in foreign trade. The creation of monopolies reached its climax
in the reign of Queen Elizabeth (1558-1603), in the latter half of the six-
teenth century. In the words of historian, Professor S.T. Bindoff: ' ... the
restrictive principle had, like some giant squid, fastened its embracing tenta-
cles round many branches of domestic trade and manufacture', and 'in the
last decade of Elizabeth's reign scarcely an article in common use - coal,
soap, starch, iron, leather, books, wine, fruit - was unaffected by patents of
monopoly' .6
Mercantilism: serving the absolute state 225

In sparkling prose, Bindoff writes how lobbyists, using the lure of mon-
etary gain, obtained royal courtiers to sponsor their petitions for grants of
monopoly: 'their sponsorship was usually a mere episode in the great game
of place-and-fortune-hunting which swayed and swirled incessantly around
the steps of the throne'. Once granted their privileges, the monopolists got
themselves armed by the state with powers of search-and-seizure to root out
all instances of now illegal competition. As Bindoff writes:

The 'saltpetre men of the gunpowder contract dug in every man's house' for the
nitrate-laden soil which was their raw material. The minions of the playing-card
monopoly invaded shops in search of cards lacking its seal and browbeat their
owners, under threat of summons to a distant court, into compounding for their
offences. The search-warrant was, indeed, indispensable to the monopolist if he
were to eliminate competition and leave himself free to fix the price of his wares. 7

The result of this expulsion of competition, as we might expect, was the

lowering of quality and the raising of price, sometimes by as much as 400 per
England was pre-eminently the home of foreign trade companies receiving
grants of monopoly for trade with portions of the globe. The granddaddy of
the English foreign trade companies was the Muscovy Company, chartered in
1553, and granted a monopoly of all English trade with Russia and Asia
through the White Sea port of Archangel. In the late 1570s and early 1580s,
Queen Elizabeth granted trading privileges to a spate of new monopoly
companies including the Barbary, Eastland, and Levant Companies. A small
group of politically powerful men, centred originally in the Muscovy Com-
pany, was at the core of everyone of these monopoly companies. The Muscovy
Company, for a while, held a monopoly on all exploration and trade with
North America. Further, when in the 1580s the Muscovy Company's trade
with Russia was severely injured by the Cossacks' disruption of the Volga
trade route from Asia, Muscovy Company leaders formed both the Turkey
Company and the Venice Company in 1581 for trading with India. The two
companies merged in 1592 into the Levant Company, which enjoyed a mo-
nopoly grant trade with India through the Levant and Persia.
Running like a powerful thread through all these interlocking monopoly
companies was the person and the family of Sir Thomas Smith (1558-1625).
Smith's grandfather, Andrew Judd, was a principal founder of the Muscovy
Company. His father, Sir Thomas Smith, Sr (1514-77), attorney, had been an
architect of the Tudor system of royal absolutism, high taxation, and eco-
nomic restriction. By the 1590s, the junior Smith was the governor - the head
- of literally every single monopoly company concerned with foreign trade
and colonization. These included the Muscovy Company, which held the
monopoly charter for the colonization of Virginia. But the climax of Smith's
226 Economic thought before Adam Smith

career came when, to all his other posts, was added governor of the mighty
East India Company, chartered in 1600 with a monopoly of all trading to the
East Indies.

7.5 Enserfdom in eastern Europe

What happened in eastern Europe was even worse than mercantilism. There,
absolutism by the kings and the feudal nobility was so rampant and un-
checked that they decided to crush nascent capitalism. Former serfs, now
free, had been moving from the rural lands to the towns and cities, there to
work for higher wages and better opportunities in emerging capitalist produc-
tion and industry. By the beginning of the fifteenth century, eastern Europe,
specifically Prussia, Poland and Lithuania, had a freed peasantry. Towns and
monetary exchange flourished, and clothmaking and manufacturing grew and
prospered. In the sixteenth century, however, the state and the nobility of
eastern Europe reasserted themselves and re-enserfed the peasantry. In par-
ticular, a rise in the price of grain (mainly rye) in Europe in the early
sixteenth century made grain farming more profitable, spurring the socializ-
ing of cheap labour in service of the noble landlords. The peasants were
forced back on to the land, and compelled to remain there, and were also
coerced into corvees (periodic forced labour for the nobility). The peasants
were forced into large manorial estates owned by the nobles, since large
estates meant cheaper costs of supervising and coercing peasant labour on the
part of the nobility. In addition, in Poland, the nobles induced the state to pass
further laws, severely restricting the activities· of urban merchants. Polish
merchants now had to pay higher tolls for shipping produce on the Vistula
River than did landlords, and Polish merchants were prohibited from export-
ing domestic products. Moreover, the repression of the formerly free peas-
antry greatly lowered their money income for purchasing goods. These poli-
cies combined to destroy the Polish towns, the urban economy, and the
internal market for Polish goods. As Professor Miskimin writes, 'Out of self-
interest the nobles successfully contrived to crush Polish economic develop-
ment in order to reserve for themselves the rich grain trade and to assure
adequate supplies of agricultural labor for the maximum exploitation of their
estates' .8
In Hungary, a similar process of re-enserfment occurred, but in the service
of cattle-raising and wine-growing rather than rye production. In the later
Middle Ages, rents by the peasantry had been converted from payments in
kind to monetary payments. Now, in the sixteenth century, the nobles mark-
edly increased the rents and reconverted them into payments in kind. Taxes
on peasants were raised substantially and the burden of forced corvee labour
was increased greatly in one area ninefold from seven days per year to 60.
The lords got themselves granted a tight monopoly of wine sales, as well as
Mercantilism: serving the absolute state 227

exemptions from heavy export taxes on cattle payable by merchants. In that

way, the landlords gained themselves privileged monopolies of buying and
selling for the vital wine and cattle trades.

7.6 Mercantilism and inflation

The post-medieval state acquired most of its eagerly sought revenues by
taxation. But the state has always been attracted by the idea of creating its
own money in addition to plundering directly the wealth of its subjects.
Before the invention of paper money, however, the state was limited in
money creation to occasional debasements of the coinage, of which it had
long managed to secure a compulsory monopoly. For debasement was a one-
shot process, and could not be used, as the state would always like, to create
money continually and feed it into state coffers for use in building palaces,
pyramids, and other consumption goods for the state apparatus and its power
The highly inflationary instrument of government paper money was first
discovered in the Western world in French Quebec in 1685. Monsieur Meules,
the governing intendant of Quebec, pressed as usual for funds, decided to
augment them by dividing some playing cards into quarters, marking them
with various denominations of French currency, and then using them to pay
for wages and materials. This card money, later redeemed in actual specie,
soon became repeatedly issued paper tickets.
The first more familiar form of government paper began five years later, in
1690, in the British colony of Massachusetts. Massachusetts had sent soldiers
on one of their customary plunder expeditions against prosperous French
Quebec, but this time had been beaten back. The disgruntled Massachusetts
soldiery was even more irritated by the fact that their pay had always come
out of their individual shares of French booty sold at auction, but that now
there was no money for them to collect. The Massachusetts government,
beset by demands for payment of their salary by a mutinous soldiery, was not
able to borrow the money from Boston merchants, who shrewdly considered
its credit rating unworthy. Finally, Massachusetts hit upon the expedient of
issuing 7 000 pounds in paper notes, supposed to be redeemable in specie in a
few years. Inevitably, the few years began to stretch out on the horizon, and
the government, delighted with this new-found way of acquiring seemingly
costless revenue, poured on the printing presses, and quickly issued 40 000
more paper pounds. Fatefully, paper money had been born.
It was to be two decades before the French government, under the influ-
ence of the fanatically inflationist Scottish theoretician John Law, turned on
the taps of paper money inflation at home. The English government turned
instead to a more subtle device for accomplishing the same objective: the
creation of a new institution in history: a central bank.
228 Economic thought before Adam Smith

The key to English history in the seventeenth and eighteenth centuries is

the perpetual wars in which the English state was continually engaged. Wars
meant gigantic financial requirements for the Crown. Before the advent of the
central bank and government paper, any government not willing to tax the
country for the full cost of war relied on an ever more extensive public debt.
But if the public debt continues to rise, and taxes are not increased, some-
thing has to give, and the piper must be paid.
Before the seventeenth century, loans were generally made by banks, and
'banks' were institutions in which capitalists lent out funds that they had saved.
There was no deposit banking; merchants who wanted a safe place to keep their
surplus gold deposited them in the King's Mint in the Tower of London - an
institution accustomed to storing gold. This habit, however, proved highly
costly, for King Charles I, needing money shortly before the outbreak of the
civil war in 1638, simply confiscated the huge sum of 200 000 pounds in gold
stored at the Mint - announcing it to be a 'loan' from the depositors. Under-
standably shaken by their experience, merchants began depositing their gold in
the coffers of private goldsmiths, who were also accustomed to the storing and
safe keeping of precious metals. Soon, goldsmiths' notes began to function as
private bank notes, the product of deposit banking.
The Restoration government soon needed to raise a great deal of money
for wars with the Dutch. Taxes were greatly increased, and the Crown bor-
rowed extensively from the goldsmiths. In late 1671, King Charles II asked
the bankers for further large loans to finance a new fleet. Upon the gold-
smiths' refusal, the king proclaimed, on 5 January 1672, a 'stop of the
Exchequer', that is, a wilful refusal to pay any interest or principal on much
of the outstanding public debt. Some of the 'stopped' debt was owed by the
government to suppliers and pensioners, but the vast bulk was held by the
victimized goldsmiths. Indeed, of the total stopped debt of 1.21 million
pounds, 1.17 million was owned by the goldsmiths.
Five years later, in 1677, the Crown grudgingly began paying interest on
the stopped debt. But by the time of the eviction of James II in 1688, only a
little over six years of interest had been paid out of the 12 years' debt.
Furthermore, the interest was paid at the arbitrary rate of 6 per cent, even
though the king had originally contracted to pay interest at rates ranging from
8 to 10 per cent.
The goldsmiths were even more intensively thwarted by the new govern-
ment of William and Mary, ushered in by the Glorious Revolution of 1688.
The new regime simply refused to pay any interest or principal on the
stopped debt. The hapless creditors took the case to court, but while the
judges agreed in principle with the creditors' case, their decision was over-
ruled by the Lord Keeper, who candidly argued that the government's finan-
cial problems must take precedence over justice and property right.
Mercantilism: serving the absolute state 229

The upshot of the 'stop' was that the House of Commons settled the affair
in 1701, decreeing that half of the capital sum of the debt be simply wiped
out; and that interest on the other half begin to be paid at the end of 1705, at
the remarkable rate of 3 per cent. Even that low rate was later cut to two-and-
The consequences of this declaration of bankruptcy by the king were as
could be predicted: public credit was severely impaired, and financial disas-
ter struck for the goldsmiths, whose notes were no longer acceptable to the
public, and for their depositors. Most of the leading goldsmith-ereditors went
bankrupt by the 1680s, and many ended their lives in debtors' prison. Private
deposit banking had received a crippling blow, a blow which would only be
overcome by the creation of a central bank.
The stop of the Exchequer, then, coming only two decades after the confis-
cation of the gold at the Mint, managed virtually to destroy at one blow
private deposit banking and the government's credit. But endless wars with
France were now looming, and where would government get the money to
finance them?9
Salvation came in the form of a group of promoters, headed by the Scot,
William Paterson. Paterson approached a special committee of the House of
Commons formed in eady 1693 to study the problem of raising funds, and
proposed a remarkable new scheme. In return for a set of important special
privileges from the state, Paterson and his group would form the Bank of
England, which would issue new notes, most of which would be used to
finance the government's deficit. In short, since there were not enough pri-
vate savers willing to finance the deficit, Paterson and company were gra-
ciously willing to buy interest-bearing government bonds, to be paid for by
newly created bank notes, carrying a raft of special privileges with them. As
soon as Parliament duly chartered the Bank of England in 1694, King William
himself and various MPs rushed to become shareholders of this new money-
creating bonanza.
William Paterson urged the English government to grant Bank of England
notes legal tender power, but this was going too far, even for the British
Crown. But Parliament did give the bank the advantage of holding deposits
of all government funds.
The new institution of government-privileged central banking soon dem-
onstrated its inflationary power. The Bank of England quickly issued the
enormous sum of 760 000 pounds, most of which were used to buy govern-
ment debt. This issue had an immediate and substantial inflationary impact,
and in two short years, the Bank of England was insolvent after a bank run,
an insolvency gleefully abetted by its competitors, the private goldsmiths,
who were happy to return to it the swollen Bank of England notes for
redemption of specie.
230 Economic thought before Adam Smith

At this point, the English government made a fateful decision: in May

1696, it simply allowed the bank to 'suspend specie payment'. In short, it
allowed the bank to refuse indefinitely to pay its contractual obligations to
redeem its notes in gold, while at the same time continuing blithely in
operation, issuing notes and enforcing payments upon its own debtors. The
bank resumed specie payments two years later, but this act set a precedent for
British and American banking from that point on. Whenever the bank inflated
itself into financial trouble, the government stood ready to allow it to suspend
specie payments. During the last wars with France, in the late eighteenth and
early nineteenth century, the bank was allowed to suspend payments for two
The same year, 1696, the Bank of England had another scare: the spectre
of competition. A Tory financial group tried to establish a national land bank,
to compete with the Whig-dominated central bank. The attempt failed, but
the Bank of England moved quickly to induce Parliament, in 1697, to pass a
law prohibiting any new corporate bank from being established in England.
Any new bank would have to be either proprietary or owned by a partnership,
thereby severely limiting the extent of competition with the bank. Further-
more, counterfeiting of Bank of England notes was now made punishable by
death. In 1708, Parliament followed up this set of privileges by another
crucial one: it now became unlawful for any corporate bank other than the
Bank of England, and for any bank partnership over six persons, to issue
notes. And, moreover, incorporated banks and partnerships over six were also
prohibited from making any short-term loans. The Bank of England now only
had to compete with tiny banks.
Thus, by the end of the seventeenth century, the states of western Europe,
particularly England and France, had discovered a grand new route towards
the aggrandizement of state power: revenue through inflationary creation of
paper money, either by government or, more subtly, by a privileged, monopo-
listic, central bank. In England, private banks of deposit were inspired to
proliferate (especially checking accounts) under this umbrella, and the gov-
ernment was at last able to expand the public debt to fight its endless wars;
during the French war of 1702-13, for example it was able to finance 31 per
cent of its budget via public debt.

7.7 Notes
1. Jacob Viner, Studies in the Theory of International Trade (New York: Harper & Bros,
1937), pp. 58-9.
2. Ibid., p. 59.
3. Eli F. Heckscher, Mercantilism (1935, 2nd ed., New York: Macmillan, 1955) vol. I, p. 162.
4. Charles Woolsey Cole, French Mercantilism, 1683-1700 (New York: Columbia University
Press, 1943), p. 176.
5. Harry A. Miskimin, The Economy of Later Renaissance Europe: 1460-1600 (Cambridge:
Cambridge University Press, 1977), p. 92.
Mercantilism: serving the absolute state 231

6. S.T. Bindoff, Tudor England (Baltimore: Penguin Books, 1950), p. 228.

7. Ibid., p. 291.
8. Harry A. Miskimin, The Economy (~t' Later Renaissance Europe: 1460-1600 (Cambridge:
Cambridge University Press, 1977), p. 60.
9. Of the 66 years from 1688 to 1756, fully 34, or more than half, were spent in wars with
France. Later wars, such as 1756-63, 1777-83, and 1794-1814, were even more spectacu-
lar, so that of the 124 years from 1688 to 1814, no less than 67 were spent by England in
wars with the 'French threat'.
8 French mercantilist thought in the
seventeenth century

8.1 Building the ruling elite 235

8.2 The first major French mercantilist: Barthelemy de Laffemas 236
8.3 The first 'Colbert': the duc de Sully 239
8.4 The eccentric poet: Antoine de Montchretien 240
8.5 The grandiose failure of Fran~ois du Noyer 241
8.6 Under the rule of the cardinals, 1624-61 243
8.7 Colbert and Louis XIV 246
8.8 Louis XIV: apogee of absolutism (1638-1714) 249
8.9 Notes 251

French mercantilist thought in the seventeenth century 235

8.1 Building the ruling elite

The system of mercantilism needed no high-flown 'theory' to get launched. It
came naturally to the ruling castes of the burgeoning nation-states. The king,
seconded by the nobility, favoured high government expenditures, military
conquests, and high taxes to build up their common and individual power and
wealth. The king naturally favoured alliances with nobles and with cartellizing
and monopoly guilds and companies, for these built up his political power
through alliances and his revenue through sales and fees from the beneficiar-
ies. Neither did the carteUizing companies need much of a theory to come out
in favour of themselves acquiring monopoly privilege. Subsidy to export,
keeping out of imports, needed no theory either: nor did increasing the
supply of money and credit to the kings, nobles or favoured business groups.
Neither did the famous urge of mercantilists to build up the supply of bullion
in the country: that supply in effect meant increased bullion flowing into the
coffers of kings, nobles and monopoly export companies. And who does not
want the supply of money in their pockets to rise?
Theory came later; theory came either to sell to the deluded masses the
necessity and benevolence of the new system, or to sell to the king the
particular scheme being promoted by the pamphleteer or his confreres. Mer-
cantilist 'theory' was a set of rationales designed to uphold or expand par-
ticular vested economic interests.
Many twentieth century historians have lauded the mercantilists for their
proto-Keynesian concern for 'full employment', thus showing allegedly sur-
prising modern tendencies. It should be stressed, however, that the mercantil-
ist concern for full employment was scarcely humanitarian. On the contrary,
their desire was to stamp out idleness, and to force the idle, the vagrant, and
the 'sturdy beggars' to work. In short, for the mercantilists, 'full employ-
ment' frankly implied its logical corollary: forced labour. Thus, in 1545, the
'sturdy beggars' of Paris were forced to work for long hours, and two years
later, 'to take away all opportunity for idleness from the healthy', all women
able but unwilling to work were whipped and driven out of Paris, while all
men in the same category were sent to the galleys as slave labour.
The class basis of this mercantilist horror of idleness should be instantly
noted. The nobility and the clergy, for example, were scarcely concerned
with their own idleness; it was only that of the lower classes that must be
ended by any means necessary. The same is true of the privileged merchants
of the third estate. The thinly veiled excuse was the necessity of increasing
'the productivity of the nation', but these classes constituted the ruling elite,
and such forced ending of idleness, whether on public works or in private
production, was a boon to the rulers. It not only increased production for the
latter's benefit; it also lowered wage rates by adding to the supply of labour
by coercion.
236 Economic thought before Adam Smith

Thus, at the meeting of the states general, the parliamentary body of

France, in 1576, all three estates united in their call for forced labour. The
clergy urged that 'no idle person ... be allowed or tolerated'. The third estate
wanted 'sturdy beggars' to be put to work, whipped or exiled. The nobles
urged that 'sturdy beggars and idlers' be forced to work and whipped if they
refused to comply.
The same states-general made their special pleading all too painfully clear
in the matter of protective tariffs. The estates called for the prohibition of
imports of all manufactured goods and the export of all raw materials. The
purpose of both measures was to throw a wall of monopoly protection around
domestic manufactures and to force producers of raw materials to sell their
goods to those domestic businesses at an artificially low price. The excuse
that such measures were necessary to 'keep bullion' or money 'at home'
would seem patently absurd to any objective person. For if French consumers
are to be prevented from buying imports in order to safeguard 'their bullion' ,
what might happen otherwise? Was there really any danger of Frenchmen
sending all their bullion abroad and keeping none for themselves? Clearly,
such an event would be absurd, but even if it happened - the worst-case
scenario - there is an evident hard maximum limit to any outflow of bullion
from home. For where are the consumers bent on further importation going to
get more bullion? Clearly, only by exporting other products abroad.
Consequently, the 'keeping money at home' argument is patently fraudu-
lent, whether in seventeenth century France or in the twentieth century United
States. The states-general were interested in protecting certain French indus-
tries, period.
The 'keeping money at home' argument was also a convenient stick to beat
foreign businessmen or financiers who could outcompete natives. Thus the
prospect of German bankers and Italian financiers flourishing in France gave
rise to paroxysms of fury at the 'ill-gotten gains' of foreigners, taking money
out of the country, fury that was of course fed by the typically mercantilist
egregious 'Montaigne fallacy' that one man's (or one nation's) gain on the
market was ipso facto another man's (or nation's loss). These disgruntled
Frenchmen often suggested that foreign financiers be expelled from the coun-
try, but the kings were typically too bogged down in debt to afford such

8.2 The first major French mercantilist: Barthelemy de Laffemas

The first French mercantilist of note was Barthelemy de Laffemas (1545-
1612), an uneducated son of a very poor Protestant family in Dauphine. All
his life he was the servitor of Henry of Navarre, the Protestant pretender,
rising in 1582 to the exalted post of honorary tailor and valet to his master.
When Henry of Navarre became King Henry IV, Laffemas's fortune was
French mercantilist thought in the seventeenth century 237

made, and he became in 1601 controller-general of commerce and head of

the Commission of Commerce, to remain so until the king's death. Like a
devoted dog who dies shortly after his master, Laffemas, now broken in
power, died a year after Henry was assassinated in 1610. Laffemas comes to
our attention because of the literally dozens of execrably written pamphlets
he produced during his decades in power, on behalf of the mercantile system
which he was helping to put into place in France.
Laffemas's focal point, his criterion for numerous economic policies, was
whether or not they brought bullion into the kingdom. But note that these
views need not necessarily be interpreted as dim-witted reliance on money-
as-wealth; for when Laffemas wrote that gold and silver were 'the sinews and
support of kingdoms and monarchies ... the true matter and substance which
maintains the state against. .. enemies' , he was of course quite right. The more
money kings can amass from their subjects, the wealthier and more powerful
they would become. There is nothing odd or fallacious about that. The fallacy
existed - should the argument be taken seriously - for anyone who identified
the king's interest with that of all of French society.
The one spark of economic intelligence here came with the fact that
Laffemas was one of the first mercantilists to shrewdly advise the king not to
directly prohibit the export of bullion. Far better, he believed, to allow bul-
lion to flow in and out of the country freely, and then strictly regulate
commerce and industry in such a way that bullion would flow into the
Apart from that, Laffemas's economic advice was a dreary litany: prohibit
all manufactured imports, prohibit fairs which drained money out of the
kingdom and into the hands of foreigners, force merchants to buy only raw
materials abroad and not manufactures, prohibit the export of raw materials.
Guilds must be revived and used to regulate all urban work and to keep up
the quality of products; committees of masters should supervise guilds; a
bureau of manufactures should supervise them, and so on up to the royal
Promoting the usual mercantilist cant, Laffemas assured agriculture that it
would benefit, not suffer, from the establishment of protected manufactures,
since these would supply a home market for farm products. That this would
be a highly inefficient and costly home market Laffemas did not bother to
Everyone who opposed his views, according to Laffemas, was selfish,
ignorant, and/or a traitor, and should be dealt with accordingly. All who
disobeyed the regulations and prohibitions should suffer confiscation of their
goods as well as death.
Like most of his mercantilist confreres, Barthelemy de Laffemas was
enamoured of the idea of full employment and the eradication of idleness.
238 Economic thought before Adam Smith

Full employment, of course, meant coerced employment, and Laffemas called

for an end to idleness by putting the idle to work, the reluctant to be forced
into it by 'chains and prisons'. Taverns and cabarets were to be severely
restricted, and confirmed drunkards arrested and put into the pillory.
Protectionism begins by trying to ensure national self-sufficiency in goods
that can be made at home, and then continues by expanding the definition of
what can indeed be made. For when profitability on the market is abandoned as
a criterion, virtually every good in creation can be made - at some cost - at
home. If Americans wanted to, they could undoubtedly grow all their bananas
in hothouses in Maine or Montana at astronomical cost. But what would be the
point, apart from subsidies to a few privileged hothouse growers?
One of Barthelemy de Laffemas's daftest projects, which as controIIer-
general he did his best to put into effect, was to make France self-sufficient in
one of her favourite luxury imports: silks. Many of his pamphlets and practi-
cal efforts were devoted to force-feeding an enormous expansion of the
French silk industry, hitherto small and confined to the south of France.
Laffemas insisted that the climate of France was ideal for raising silk-
worms; any belief to the contrary, any subversive talk that France was largely
too cold and stormy for silk growing, was merely propaganda spread by the
'evil designs of certain French merchants, retailers of foreign silks'. Laffemas
pointed to his own successful silk-growing, to King Henry's planting of
mulberry trees (on which silkworms were fed). He advocated a law compel-
ling all property owners, including the clergy and monasteries, to plant two
or three mulberry trees per acre. He painted a beautiful picture of vast profits
that were sure to flow from mulberry trees and silk culture. Laffemas also
claimed magical medicinal properties for mulberries: they would cure tooth-
ache and stomach trouble, relieve burns, chase away vermin, and be an
antidote to poisons.
Even though Laffemas persuaded the king to pour hundreds of thousands
of livres into fostering the growth of mulberry trees and silk culture, and the
king duly ordered each diocese in France to establish a nursery of 50 000
mulberries, the great silk experiment proved an abject failure. The climate of
most of France indeed proved inhospitable, a product of hard reality rather
than misinformation spread by selfish and traitorous importers. The mass of
the French clergy understandably dragged their feet at suddenly being forced
to become silk producers. France continued to be a heavy net importer of
Laffemas's main if not only disciple was his son Isaac. At the tender age of
19, young Isaac de Laffemas (1587-1657), keen to become the heir of his
powerful father in every sense, published a History of Commerce in France
(1606). The History was scarcely a memorable work, distinguished mainly
for the fawning praise which he lavished upon his father and on King Henry,
French mercantilist thought in the seventeenth century 239

and on the slavish repetition of his father's pet notions and nostrums. The
tone of this work may be gauged from the fact that Isaac lauded Henry IV as
the source of all that is good in France. Addressing his Majesty, young Isaac
wrote that heaven 'has favored my father in having let him live during your
With the fall of his father from grace and his subsequent death, Isaac's
career as a political economist came to an untimely end, and he ended his
days as a minor but faithful lieutenant of the chief minister, Cardinal Richelieu.

8.3 The first 'Colbert': the due de Sully

What Jean-Baptiste Colbert would be in the last half of the seventeenth
century to Louis XIV, Maximilien de Bethune, Baron de Rosny, the due de
Sully (1560-1641) was to Henry IV. The young Bethune was born a Hugue-
not aristocrat, Baron de Rosny. Naturally, he too gravitated to the court of
Henry of Navarre, and fought and was wounded during the religious wars. It
is characteristic of Rosny that he urged Henry IV to turn Catholic in order to
save his throne, although he himself refused to do so.
The arrogant and ruthless Rosny quickly became Henry IV's leading min-
ister as superintendent of finance, and for his services was made by his
master the due de Sully. Sully's own views stem from his Memoirs (1638),
written in old age as a glowing apologia for his own term in office, for Sully
had been forcibly retired to private life after the assassination of his royal
patron. In his Memoirs, Sully claims to have opposed the more crackpot
schemes of his fellow top bureaucrat Laffemas. Thus, he writes at length of
his opposition to Laffemas's silk fiasco. Silk could not readily grow in the
French climate, he had warned, and also it would lead Frenchmen into undue
It is not, of course, that Sully was not a mercantilist. It is just that, instead
of proceeding with the folly of force-feeding domestic luxury industries,
such as silk, he would have passed laws directly against luxurious consump-
tion. He was eager to ban the export of gold and silver directly, paying fees to
himself and others for ferreting out evaders of the law. Some of his specific
views, of course, such as on the silk scheme, might be a rewriting of history
to make himself look good to contemporaries; after all, neither Laffemas nor
King Henry were then alive to verify his recollections. Others might be
simply the product of bureaucratic infighting with his fellow economic czar.
A dedicated absolutist, who indeed did much to entrench centralized abso-
lutism in France, the Due de Sully was basically as much a protectionist as
his colleague Laffemas, despite the claim of some historians that Sully (and
his monarch) was some sort of 'free-trader'. The one significant case where
Sully opposed a Laffemas protection scheme was the latter's proposal to ban
all imports of textiles. But here the basic reason was his loyalty to the city of
240 Economic thought before Adam Smith

Lyons, the leading Protestant stronghold in south-eastern France, which would

have suffered greatly from the prohibition of such trade. Throughout his
career, Sully fought to uphold the fortunes and privileges of Lyons.

8.4 The eccentric poet: Antoine de Montchretien

One of the most bizarre characters in the history of economic thought was the
poet and dramatist Antoine de Montchretien (c.1575-1621). Born in Falaise,
in Normandy, Montchretian grew up in a middle-class household, his father
probably having been an apothecary. He went to a fashionable school at
Caen, and at the age of 20 began to write poetry and tragic plays, some of
which, including Hector and L'Ecossaise, are still considered classics of
French literature. At 30 Montchretien became involved in a scandalous duel,
and fled to England. After travelling in Holland, he returned to France around
1610 and married a rich Norman widow, who financed his start in the hard-
ware business. He thereupon set up a factory at Ousonne-sur-Loire, where he
produced knives and scythes.
In 1615, at the age of 40, Antoine de Montchretien published his one and
only work on economics, the Traicte de l'Oeconomie Politique (Treatise on
Political Economy). The only distinction of this book was its title, for it was
the first time in history that the phrase 'political economy' had ever appeared.
The Treatise is a rambling, disorganized account of the economic resources
of the country, and a plea to the twin rulers of France (the young King Louis
XIII and his Regent and Queen Mother, Marie de Medici) to impose order,
rule with an iron hand, and advance the greatness of their nation-state, France.
As Charles Cole puts it, the book 'is based in large part on the tacit assump-
tion that control and direction of the economic life of the country is one of
the chief functions of government, and it is a plea for greater activity in
economic matters on the part of the rulers'. 1 One sentence from the work will
convey its essential spirit: 'Your Majesties possess a great state, agreeable in
geographic situation, abounding in wealth, flourishing in peoples, powerful
in good and strong cities, invincible in arms, triumphant in glory' . All France
needs, Montchretien opined, is 'order': 'Order is the entelechy of states'.
The alleged need for a state-imposed order was linked neatly with
Montchretien's conscious echoing of the Montaigne fallacy: 'It is said that no
one ever loses without another gaining. This is true and is borne out in the
realm of commerce more than anywhere else' .
For Montchretien, the French Crown in particular was supposed to regulate
and foster production and trade, and especially manufactures, so that France
could become self-sufficient. Foreign goods and foreign manufacturers should
be dri ven out of France. Thus Dutch linen manufacturers were at the time
allowed to operate in France; that must be ended. English textiles should be
banned. France must be made self-sufficient in silk, Montchretien asserted, and
French mercantilist thought in the seventeenth century 241

he claimed that the fiasco of silk subsidy in the reign of Henry IV had come
about only because of faithlessness on the part of the monarch's aides. Further-
more, since 'whatever is foreign corrupts us', foreign books should be prohib-
ited, since they 'poison our spirits' and 'corrupt our manners'.
Nor did Montchretien neglect his own scythe business. It was a national
tragedy, he warned, that German scythes were outcompeting French prod-
ucts, even though French scythes were superior. One wonders, then, why
French consumers were perverse enough to prefer the German product -
unless, of course, its price was lower.
Idleness, according to Montchretien, was evil and had to be stamped out,
by force if necessary. Man, to Montchretien, is born to live in continual
labour; the policy of the state should therefore be to make sure that no part of
the population ever remains idle. Idle hands are the devil's hands; idleness
corrupts the strength of men and the chastity of women. Idleness, in short, is
the mother of all sins. The criminals and the unruly should, therefore, be
made to work. As for so many other mercantilists, full employment for
Montchretien meant at bottom coerced employment.
The most pervasive motif in Montchretien's work was his deep and abid-
ing hatred and revulsion towards foreigners, towards their imported products
and towards their persons. Foreigners, he fulminated, 'are leeches who attach
themselves to this great [French] body, suck out its best blood, and gorge
themselves with it, then leave the skin and detach themselves'. All in all,
France, 'once so pure, so clean', had been turned into 'a bilge, a sewer, a
cesspool for other countries' .
It is impossible to know if Montchretien was hoping for great things from
the French monarch, but in any case nothing happened, and so he began to
ordain himself into the nobility, by simply calling himself the 'sieur de
Vateville' . And even though he implied in several spots in his Treatise that he
was Catholic, and declared his adoration for the absolute monarchy often
enough, yet he took part in a Huguenot uprising in Normandy in 1621, and
was killed in battle. Four days later, a judicial tribunal condemned the dead
man posthumously, dragged, broke and burned his body, and then scattered
his ashes to the winds. Such was the punishment handed out to Antoine de
Montchretien by his much vaunted absolute rulers.

8.5 The grandiose failure of Fran~ois du Noyer

Fran~ois du Noyer, sieur de Saint-Martin, had a dream. It was a grandiose
vision of the future. All around him, in the early seventeenth century, and in all
major nations of the West, the state was creating monopoly companies. Then
why not, du Noyer reasoned, go all the way? If monopoly companies for
specific products or specific areas of trade were good, why not go one better?
Why not one big company, one gigantic monopoly for virtually everything?
242 Economic thought before Adam Smith

King Henry IV listened to du Noyer's schemes with interest. They were,

after all, only logical conclusions of doctrines and notions that were every-
where in the air. But it was not until 1613 that du Noyer worked out his
plan in detail, and set it before the council of state. It was to be an enor-
mous, virtually all-inclusive company, to be called the French Royal Com-
pany of the Holy Sepulchre of Jerusalem. The company, to be headed of
course by du Noyer himself, was to have either a privileged monopoly, or
the right to regulate all other firms, in virtually every trade. Thus, the Royal
Company was to make cloth, and regulate all other manufacture and prepa-
ration of all types of cloth; control all aspects of wine making, and all
merchants and hotels buying wine would have to invest certain sums in the
company, at a low fixed return; hold four privileged fairs a year in Paris;
have a monopoly of all public coaches; control all mines in France; obtain
gratis various unoccupied Crown lands and abandoned quarries; dig canals,
erect mills; have a monopoly on sale of playing cards; make munitions;
borrow and lend money; and numerous other activities. Furthermore, du
Noyer would have the Royal Company obtain extraordinary powers from
the Crown:

• it would have the right to seize beggars and vagabonds and take them
to the French colonies, which it would presumably run;
• all convicted criminals would be sentenced to forced labor for the
company in the colonies;
• all bankrupts who had managed to save some money from their wreck-
age would be forced to invest that amount in the company;
• all people exiled from France could be let back into the country by
serving or paying money to the company;
• all who conducted trade higher than their rank or privileges would be
forced to join the company;
• all business documents whatsoever would have to use stamped paper
sold to them by the company.

The council of state was impressed by du Noyer's vision and ordered an

investigation of the project. The following year, 1614, the Royal Company
plan was approved by the states-general of France, and various generals,
admirals, and other high-level officials joined in the praise. Du Noyer reached
the peak of his influence, being given the old Laffemas post of controller-
general of commerce. It seemed as if the grandiloquent Royal Company plan
was actually going to be adopted. Du Noyer elaborated on his plan in a
pamphlet which he presented to the king in 1615.
The king, or rather the regent, Marie de Medici, was impressed, and in
1616 recreated the old Commission of Commerce, formerly headed by
French mercantilist thought in the seventeenth century 243

Laffemas, with instructions to study the du Noyer project in detail. The

commission met, and the following year approved the plan of the Royal
Company, and urged that all persons carrying on trade be forced to invest
their money exclusively in it. In short, the Royal Company would be the
monopoly company to end all companies. The delighted du Noyer, in the
meanwhile, seeing his cherished scheme close to fruition, published a longer
pamphlet on the plan, urging his one big company upon France. Like the king
himself, the Royal Company would be unique and universal, and its capital
would come from both private and royal sources.
The Royal Company project seemed to keep barrelling along, the council
of state granting its approval in 1618, and again in 1620, when King Louis
XIII himself gave it his warm endorsement. In early 1621, public criers
throughout Paris announced the glad tidings that the Royal Company had
been formed, and was open to receive funds for investment.
The problem, however, was money. No one seemed to want to provide
actual cash or even pledges to the new enterprise, however grandiloquent and
privileged it appeared to be. The king urged every city in France to join, but
the cities kept hanging back, pleading that they had no funds. In desperation,
controller-general of commerce du Noyer scaled down the Royal Company
to concentrate only on commerce and trade with the Indies and other over-
seas areas. Finally, du Noyer narrowed the scope of his beloved company's
capital still further to just Paris and Brittany. But even the Bretons proved not
to be interested.
The coming to power as prime minister of Cardinal Richelieu in 1624 put
the du Noyer scheme into abeyance. But four years later, the project had its
final fling. The king urged the commission of Commerce to act, and in the
spring of 1629, it again approved the plan, this time adding to its original
grandiose powers the right to make treaties with foreign countries, and to
establish colonial islands for entrepot trade.
After nearly three decades of planning and lobbying, du Noyer now needed
only the simple signature of King Louis to put his hypertrophied vision into
effect. But for some reason, the royal signature never came. No one knows
quite why. Perhaps the powerful Richelieu didn't want a rival's scheme to be
approved. Or perhaps the king was getting weary of the aging monomaniac
and his untiring enthusiasm. Repeated entreaties and importuning, however,
fell only on deaf ears. The Royal Company was at last dead, stillborn, and old
du Noyer's loss was the French public's gain.

8.6 Under the rule of the cardinals, 1624-61

The 1620s to the 1650s were decades of rule in France by two very secular
cardinals. The first was the stern, implacable, cunning, and charismatic Armand
Jean du Plessis, Cardinal de Richelieu (1585-1642). A scion of an old family
244 Economic thought before Adam Smith

of lesser nobility in Poitou, Richelieu's father, Fran~ois, had been a particular

favourite of Henry III and Henry IV. As a result, young Armand was made
bishop of Lu~on by Henry IV in 1606. Eight years later, Richelieu attracted
the attention of the Queen Mother, Marie de Medici, and became chief
adviser in her exile. He was made a cardinal in 1622, and became prime
minister in 1624, to remain so until his death 20 years later.
Richelieu's main interest was his participation in the Thirty Years' War
(1618--48), which devastated Germany for decades to come. This war sym-
bolized a fundamental shift in European wars from the strictly religious
conflicts of the previous century to the political nation-state ambitions of the
seventeenth century. Thus Richelieu, the at least nominally Catholic (albeit
politique) cardinal of a Catholic country, found himself heading a largely
Protestant European coalition against the Catholic Habsburgs of Austria and
The cardinal's theoretical views were set forth in two books written near
the end of his life, his Memoirs on the Reign of Louis XIII and his Political
Testament. While his major practical interest had not been domestic or eco-
nomic affairs, he had helped build up the absolutism of the French state. In
his works, he repeated the usual absolutist mercantilist views of the France of
his era. France should be self-sufficient in all things, the navy and merchant
marine built up, monopolies granted, the idle put to work or locked up in
institutions, and luxurious consumption prohibited.
An interesting new variant was Richelieu's candid attitude towards the
mass of Frenchmen as simply animals to be prodded or coerced in ways that
were optimal for the French state. Thus taxes should not be so high that
commerce and industry are discouraged, but neither should they be so low as
to leave the public too well off. For if the people were too comfortable and
complacent, it would be impossible to 'contain them in the rules of their
duty'. Richelieu added the revealing comment that 'It is necessary to com-
pare them [the people] to mules, who, being accustomed to burdens, are
spoiled by a long rest more than by work' .
It is clear that in the course of promoting the interests of the nation-state
and of his monarch, Richelieu did not neglect his own concerns. A receiver of
a modest annual income of 25 000 livres upon his entry into the post of prime
minister, by the end of his career in office Cardinal Richelieu was earning
some 3 million livres per annum. Apparently, the cardinal had no problem in
serving the enrichment of his sovereign and of himself at the same time.
Richelieu's successor was a fascinating character, a Sicilian whose father
was a high official attached to the powerful Colonna family. Jules Mazarin
(1602-61) was educated in Rome by the Jesuits, and then became a Church
official at the University of Alcala in Spain. Returning to Rome to earn his
doctorate in law, Mazarin was a captain of infantry, and then a papal diplomat
French mercantilist thought in the seventeenth century 245

of note. He was made a church canon without ever having been a priest.
While serving as papal nuncio to France, he gained the favour of the great
Richelieu, who offered Mazarin a high official post if he should become a
naturalized French citizen.
It is not many men who emigrate, become a citizen of another land (as
Mazarin did in 1639), and then become prime minister of that country only
three years later. Mazarin, however, achieved that feat, becoming cardinal
(still without being a priest) in 1641, and succeeding Richelieu when the
latter died a year later. Mazarin was shrewd enough to court the favour of the
queen, so that when Louis XIII died the next year, and the queen became
regent, Mazarin could continue in his powerful post. Except for a year or
two's hiatus, Mazarin continued as prime minister until his death in 1661.
Mazarin had far less interest in economic affairs than his predecessor, and
was no theoretician, devoting himself largely to diplomacy and war. He
didn't need much theoretical insight, however, to amass a fortune in high
office that put even his predecessor to shame. By the end of his rule, he had
accumulated an immense personal fortune of approximately 50 million livres.
One noteworthy work written during Mazarin's term was by a Carmelite
monk, Jean Eon, whose religious name was Mathias de Saint-Jean (c. 1600-
81). Eon was born in Saint-Malo, in Brittany, and became a friend and
adviser of the governor of Brittany, a relative of Richelieu's, Marshal de la
Meilleraye. Eon eventually became Carmelite provincial in Touraine, and
refused the opportunity to become attorney-general of that province.
During Eon's life in Brittany, the Breton merchants became interested in
founding a privileged commercial company, and in 1641 a group of mer-
chants, consulting with de la Meilleraye, worked out plans for a large com-
pany, centred at Nantes, to be called the Societe de la Bourse Commune de
Nantes. The company was approved by the council of state in 1646, but it
provoked an anonymous pamphlet in opposition. Eon was hired by the city of
Nantes, and encouraged by la Meilleraye to write a book in defence of the
company. The result was the lengthy Honourable Commerce or Political
Considerations (Le Commerce honorable ou considerations politiques)
(Nantes, 1647). The book was dedicated to Eon's friend and patron la
Meilleraye, whom he extolled as inheriting the mantle of economic leader-
ship of the nation from Richelieu.
Eon's book was a compilation of standard mercantilist doctrines and need
not be examined in detail here. He almost rivalled Montchretien in his hatred
for foreigners, and in his wish to drastically curtail their activities in or
selling to France. Two of his personal and original contributions were his
paean to the sea, shipping, and the seafaring life, and his eulogy to the city of
Nantes, its glory and its unique suitability for locating a privileged company.
246 Economic thought before Adam Smith

8.7 Colbert and Louis XIV

Jean-Baptiste Colbert (1619-83) was no scholar or theorist, but he knew with
firm conviction what ideas he liked, and these were the mercantilist notions
that had filled the air in France and the rest of Europe for generations.
Colbert's accomplishment, while functioning as the Sun King's economic
czar, was to put this compendium of mercantilist ideas into effect on a grand
scale. Colbert was convinced that the ideas were good, just and correct, and
he fervently believed that any opponent was completely wrong, either igno-
rant or biased by personal motives and special pleading. His opponents, such
as businessmen who preferred competition or free exchange, were narrow,
short-sighted, and selfish; only he, Jean-Baptiste Colbert, had the long-run
interests of the nation and the nation-state at heart. Merchants, he repeatedly
declared, were little men with only 'little private interests'. For example, they
often preferred liberty to compete with each other, whereas it is in the 'public
interest' and the 'good of the state' to see to it that all products are uniform in
make-up and quality. Colbert was speaking here, of course, of the joint
interests of the state, its rulers and bureaucracy, and of cartellists, all of
whose private interests were in fact at stake. But although the myth of the
'public' was, as usual, a mask for particular individuals and groups, their
interests were indeed far grander than those of 'little' individual merchants.
The mercantilist ideas of Colbert were familiar: encouraging and keeping
bullion in the country so that it can flow into the coffers of the state; prohibit-
ing the export of bullion; cartellizing through compulsory high standards of
quality; subsidizing of exports; and restriction on imports until France be-
came self-sufficient. Colbert's ideas on taxation were those of almost every
minister of finance everywhere, except they were more clearly and far more
candidly expressed: 'The art of taxation', he said, 'consists in so plucking the
goose as to obtain the largest amount of feathers with the least amount of
hissing'. There is no more dramatic encapsulation of the inherently conflict-
ing interests of the people vs the state. From the point of view of the state and
its rulers, the people are but a giant goose to be plucked as efficaciously as
Furthermore, that swelling the coffers of the king and the state was the
simple reason for the otherwise silly 'bullionist' doctrines of the mercantilists
can be seen in this revealing statement of Colbert's to the king: 'The univer-
sal rule of finances should be always to watch, and use every care, and all the
authority of Your Majesty, to attract money into the kingdom, to spread it out
into all the provinces so as to pay their taxes'.
Like other mercantilists, Colbert warmly embraced the 'Montaigne fal-
lacy' about trade. Trade was war and conflict. The total amount of trade in the
world, the total number of ships, the total production of manufacturing, was
fixed. One nation could only improve its trade, or shipping or manufactures,
French mercantilist thought in the seventeenth century 247

by depriving some other country of this fixed quantum. One nation's gain
must be another's loss. Colbert gloried in the fact that French trade was
growing, allegedly at the expense of misery inflicted on other nations. As
Colbert wrote to King Louis XIV in 1669, 'This state is flourishing not only
in itself, but also by the want which it has inflicted upon all the neighbouring
states' .
In reality, trade and conquest are not akin, but are diametric opposites.
Each party to every exchange benefits, whether the exchange is between
nationals of the same country or of different countries. Political boundaries
have nothing to do with the economic gain from trade and markets. In
exchange, one man's gain is only accomplished by contributing to the gain of
someone else; just as both 'nation' (i.e. people living in certain countries or
any other geographical area) mutually benefit from trade between them.
Colbert's theories, however, fitted in with deep hostility toward all foreign-
ers, particularly such prosperous nations as England and Holland.
Like other mercantilists, Colbert detested the idleness of others, and sought
to force them into working for the nation and state. All vagabonds must be
driven out of the country or put to forced labour as galley-slaves. Holidays
should be reduced, so that people would work harder.
Colbert was unusual among mercantilists in giving especial care to bring-
ing the intellectual and artistic life of the nation under state control. The
object was to make sure that art and intellect served to glorify the king and
his works. An enormous amount of money was poured into palaces and
chateaux for the king, the mightiest of which was approximately 40 million
livres on the great, isolated palace at Versailles. During Colbert's term, some
80 million livres were spent on royal edifices. Moreover, Colbert mobilized
artists and intellectuals into academies, and supported them by grants and
government projects. The French Academy, created shortly before as an
uninfluential semi-private group, was nationalized by Colbert and put in
charge of the French language. The Academy of Painting and Sculpture,
founded under Mazarin and given a legal monopoly of art instruction, was
reinforced by Colbert, who imposed strict regulations on these artists so that
their work would be proper and orderly and always in service to the king.
Colbert founded an academy of architecture to work on royal buildings and
to inculcate the proper architectural principles.
Neither were music nor the theatre safe from the all-encompassing rule of
Colbert. Colbert preferred the Italian opera form to the French ballet, and so
doomed the latter to the benefit of the Italian import. In 1659, the Abbe Perrin
produced the first French opera, and so a decade later, Colbert conferred upon
the abbe a monopoly of all rights to present musical performances. Perrin,
however, was a poor manager, and he went bankrupt. While in a debtor's
prison, Perrin sold his monopoly right to Jean Batiste Lulli, an Italian musi-
248 Economic thought before Adam Smith

cian and composer. Lulli was given the right to form the Royal Academy of
Music, and Lulli's permission was necessary for any further musical per-
formance with more than two instruments.
Similarly, Colbert created a theatrical monopoly. In 1673, he forced two
existing theatres to unite: when a third troupe was later forced to join them,
the Comedie jran9aise was thereby formed in 1680. The Comedie jran9aise
was given a monopoly of all dramatic performances in Paris, was subjected
to tight state regulation and control, and aided by state funds.
With regulation and monopoly came subsidy and subvention. Pensions,
grants, no-show appointments as valets of the king, lucrative appointments as
artists to the king, exemptions from taxes or from the wrath of creditors, all
poured out into the arts. Similarly, for the theatre, writers, scientists, histori-
ans, philosophers, mathematicians and essayists. All manner of largesse poured
out to them from the state trough. It was subvention that put to shame any
contemporary national endowment for the humanities or national science
foundation. The outpouring truly subverted any sort of spirit of independence
that French intellectuals might have attained. The mind of a whole nation had
been corrupted into the service of the state.
What manner of man was this, then, this grand bureaucrat who scorned the
interests of mere individuals and merchants as petty and narrow, who pre-
sumed always to speak and act for the 'national' and even 'public' interest?
Jean-Baptiste Colbert was born in Reims, into a merchant family. His father,
Nicolas, purchased a minor government office in Paris; his more influential
uncle, Odart Colbert, was a successful merchant-banker. Jean-Baptiste was
an uneducated young man, but his uncle knew a banker for Cardinal Mazarin.
More importantly, one of Odart's sons married the sister of an important
government official, Michel Le Tellier. Uncle Odart got young Colbert a job
working for Le Tellier, who had just been appointed to the post of secretary
of state for military affairs. Jean-Baptiste's lifelong service in the top French
bureaucracy had begun. After seven years in this post, Colbert married Marie
Charon, after obtaining for her father, a wealthy financial official, an impor-
tant tax exemption.
Soon Colbert became a counsellor of state, and then one of the top aides of
Cardinal Mazarin. Soon after Mazarin's death, Colbert rose to become virtual
economic czar of Louis XIV, keeping this status Until his death.
Cold, humourless, hard and implacable, 'a man of marble' as he was called
by a contemporary, Jean-Baptiste Colbert yet had the wit to engage in bound-
less flattery and demeaning personal service to his royal patron. Thus Colbert
wrote to Louis on the occasion of a military victory: 'One must, Sire, remain
in silent wonder, and thank God every day for having caused us to be born in
the reign of a king like Your Majesty'. And no service to the Sun King was
too demeaning. Colbert searched for the king's missing swans, supplied
French mercantilist thought in the seventeenth century 249

Louis with his favourite oranges, arranged for the birth of the king's illegiti-
mate children, and bought jewels for mistresses on the king's behalf. Colbert's
personal philosophy was best summed up in his advice to his beloved son,
Seignelay, on how to get ahead in the world. He told his son that 'the chief
end that he should set himself is to make himself agreeable to the king, he
should work with great industry, during his whole life to know well what
might be agreeable to His Majesty' .
Colbert was well rewarded for his life of hard work and abject sycophancy
in the service of the king. Apparently only the interests of individual mer-
chants and citizens were narrow and 'petty'. Colbert had little difficulty in
identifying the lucrati ve feathering of his own nest with the 'public interest' ,
national glory, and the common weal. A stream of offices, benefices, pen-
sions and grants streamed into his coffers from the ever grateful king. In
addition, Colbert received special bonuses or 'gratifications' from the king;
thus, in one order, in February 1679, Colbert received a gratification of no
less than 400 000 livres. The overall sum poured into Colbert's coffers was
immense, including lands, and bribes for subsidies and exemptions from
grateful lobbyists and economic interests. All in all, he amassed at least 10
million livres, notable to be sure, but not the enormous extent of Cardinal
Mazarin's boodle as prinle minister.
Colbert also did extremely well by his extensive family. Brothers, cousins,
sons and daughters of Colbert were showered with favours, and became
bishops, ambassadors, military commanders, intendants, and abbesses of
leading convents. The Colbert family certainly did well by doing 'good' on
behalf of the sovereign and the 'public interest' of France.
After Colbert's death in 1683, his successors under Louis XIV developed
and strengthened the policy of Colbertisme. Protective tariffs were greatly
increased, imports of various goods limited to specific ports, quality regula-
tions strengthened, and innovations hobbled for the protection of the indus-
trial and occupational status quo. Colbertisme was frozen into the French
political economy.

8.8 Louis XIV: apogee of absolutism (1638-1714)

For his part, Louis XIV had no trouble fitting the absolutist role. Even more
than Colbert, he totally identified his own private interest as monarch with
the interests of the state and with the 'public good'. Whether or not Louis
uttered the famous words often attributed to him, 'I am the state' , he certainly
believed and acted upon them, as did his father Louis XIII before him, who
had said, 'It is not I who speak, it is my state'. Statism logically implies that
the state owns all the property in the land, and that all who live on or use such
property do so only by the sufferance of the 'true' owner. And Louis certainly
believed that he was the true owner of all property in France. Hence justice
250 Economic thought before Adam Smith

was 'my justice', and hence he claimed the inherent right to tax all his
subjects at will. And why not indeed, if they were all truly existing in his
realm only at his, the owner's pleasure?
Furthermore, virtually everyone, even the king's opponents, believed that
he ruled by divine grace and divine right. Previously, Cardinal Richelieu had
called kings the images of God. Early in the Sun King's reign, court propa-
gandist Daniel de Priezac, in his Political Discourses (1652, 1666), called
monarchical sovereignty a 'great light that never sets'. Furthermore, that
light is a great divine Mystery hidden from mere mortals. As de Priezac put

the source of the majesty of kings is so high, its essence so hidden and its force so
divine that it should not seem strange that it should make men reverent without
their being permitted to understand it, just as is true with celestial things. 2

In contrast to the adulatory worshippers at the shrine of the king's quasi-

divinity were the Montaigne-type sceptics and pessimists about human na-
ture who fed the stream of panegyrics to Louis XIV in their own way. In a set
of three Sceptical Discourses (1664), the cynical Samuel Sorbiere, admirer
and translator of Thomas Hobbes, decried the tendencies of bestial and cor-
rupt modern man in grabbing from the public trough and having no sense of
the common good. But there is, opined Sorbiere, a way out: absolute submis-
sion to the commands of the (presumably superhuman) king, so that order is
established out of perpetual conflict. In that total submission, the people will
find their way back to the instinctual child-like simplicity of the state of
nature preceding their entry into civil society. As Professor Keohane writes
of Sorbiere: 'as the subjects of an absolute despot, they would live much the
same way, he argues, in serene simplicity, totally dependent on the sovereign
for their lives and fortunes, protected against the encroachments of their
fellows, happy in their slavery' 3
King Louis XIV was able to combine both strands into a worshipful blend
of absolutist thought. On the one hand, as he makes clear in his private
Memoirs, written for the instruction of his son, his view of human nature (at
least of the nature of ordinary mortals) was pessimistic and Machiavellian.
Individuals are by nature limited, striving always for their own personal ends,
and heedless of the reasons why they should be subordinated to the com-
mands of others. The king, on the other hand, is superhuman, a man who is
above all and sees all and is the only one working for the 'public' good,
which is identical with his own. And the Sun King also took unto himself
quasi-divine status; for he, Louis XIV, is like the sun,

the noblest of alL .. which, by virtue of its uniqueness, by the brilliance that
surrounds it, by the light it imparts to the other heavenly bodies that seem to pay it
French mercantilist thought in the seventeenth century 251

court, by its equal and just distribution of this same light to all the various parts of
the world, by the good that it does everywhere, constantly producing life, joy, and
activity everywhere, by its perpetual yet always imperceptible movement, by
never departing or deviating from its steady and invariable course, assuredly
makes a most vivid and a most beautiful image for a great monarch.

Professor Keohane justly comments that Louis XIV 'is not content to com-
pare himself to God; he compares in such a manner that it is clear that it is
God who is the copy'.4
The acme of absolutist thought was provided by Jacques-Benigne Bossuet
(1627-1704), bishop of Meaux, court theologian and political theorist under
Louis XIV. The whole state, opined the bishop, 'is in the person of the
prince ... In him is the will of the whole people'. The kings identify with the
public good, because 'God has raised them to a condition where they no
longer have anything to desire for themselves'. Absolutism is necessary,
asserted Bossuet, because any constitutional limits on the prince raise the
dread spectre of 'anarchy', than which nothing can be worse. The only limits
on the power of the sovereign should be those he imposes on himself in his
own interest, which must be identical to the public interest whenever the
prince 'regards the state as his possession, to be cultivated and passed on to
his descendants'.
Finally, Bossuet conflates the king and God as follows:

Majesty is the image of the grandeur of God in the prince. God is infinite, God is
all. The prince, as prince, is not to be considered an individual man: he is the
public person, the whole state is included in him ... Just as all perfection and all
virtue are united in God, so all the power of the individuals is brought together in
the person of the prince. What grandeur, that a single man can contain so much. 5

Catholic political thought had come a long way from the Spanish scholastics.

8.9 Notes
1. Charles Woolsey Cole, Colbert and a Century (~t French Mercantilism (1939, Hamden,
Conn.: Archon Books, 1964), vol. I, p. 85.
2. Quoted in Nannerl O. Keohane, Philosophy and the State in France: The Renaissance to
the Enlightenment (Princeton, NJ: Princeton University Press, 1980), p. 241.
3. Ibid., p. 244.
4. Passage from the Memoirs quoted in Keohane, op. cit., note 2, p. 251.
5. Quoted in Keohane, op. cit., note 2, p. 252.
9 The liberal reaction against mercantilism in
seventeenth century France

9.1 The croquants' rebellion 255

9.2 Claude Joly and thefronde 257
9.3 A single tax 257
9.4 Rising opposition to collectivism by merchants and nobles 259
9.5 The merchants and the council of commerce 262
9.6 Marshal Vauban: royal engineer and single taxer 262
9.7 Fleury, Fenelon, and the Burgundy circle 263
9.8 The laissez-faire utilitarian: the Seigneur de Belesbat 267
9.9 Boisguilbert and laissez-faire 269
9.10 Optimistic handbook at the turn of the century 273
9.11 Notes 274

The liberal reaction against mercantilism in France 255

9.1 The croquants' rebellion

The kings and their minions did not impose an accelerating burden of abso-
lutism without provoking grave, deep and continuing opposition. Indeed,
there were repeated rebellions by groups of peasants and nobles in France
from the 1630s to the 1670s. Generally, the focus of discontent and uprising
was rising taxes, as well as the losses of rights and privileges. There were
also similar rebellions itn Spain, in mid-century, and in autocratic Russia,
throughout the seventeenth century.
Consider, for example, the remonstrances of the peasants in the first great
French rebellion of the seventeenth century, the croquants' (literally,
'crunchers') revolt in 1636 in south-western France. The croquants' rebellion
was precipitated by a sudden near-doubling of direct taxes upon the peas-
antry to raise funds for the war against Spain. The intendant La Force, sent to
investigate the disturbances, reported on the peasants' grievances and de-
mands. The peasants focused on the eternal and acclerating increases of
taxation. They pointed out that in the reign of Henry IV more taxes had been
collected than in all previous reigns of the monarchy taken together; and that
in but two years of the reign of Louis XIII they had paid more than in all the
years of Henry IV. The peasants also protested that the royal tax-collectors
carried off their cattle, clothes and tools, merely to cover the costs of enforce-
ment, so that the principal of the tax debt could never be reduced. The result
was ruin. Deprived of their means of labour, the peasants had been forced to
leave their fields untilled, and even to leave their ancient lands and beg for
bread. In a letter to his superior, La Force feels compelled to endorse their
complaints: 'It is not, Monseigneur, that I am not, by natural feeling, touched
with very great compassion when I see the extraordinary poverty in which
these people live' .
The peasants protested that they were not subversives; they were willing to
pay the old customary taxes, provided the recent increases were repealed.
New taxes should only be imposed in extreme emergencies, and then only by
the states-general (which hadn't met since 1615, and was not to meet again
until the eve of the French Revolution). Like deluded subjects at all times and
places, the peasants placed the blame for their ills not on the king himself but
on his evil and tyrannical ministers, who had led the sovereign astray. The
peasants insisted that they had had to revolt in order that 'their cries may
reach the ears of the King himself and no longer just those of his Ministers,
who advise him so badly'. Whether a ruler be king or president, it is conven-
ient for him to preserve his popularity by deflecting protest and hostility to
advisers or prime ministers who surround him.
But despite this unfortunate limitation, the croquants had the insight and
the wit to zero in on the 'public interest' myth propounded by the royal
ministers. The 'needs of the state', the peasants declared, were only a 'pretext
256 Economic thought before Adam Smith

for enriching a few private persons' - the hated tax farmers, who had bought
the privilege from the Crown of collecting taxes which then went into their
pockets; and the 'creatures of the man who rules the state', i.e. Richelieu and
his entourage. The peasants called for the abolition of courtiers' pensions, as
well as the salaries of all the newly created officials.
The following year, 1637, the croquants of the neighbouring region of
Perigord rose in rebellion. Addressing King Louis XIII, the commune of
Perigord set forth its reasons for the revolt: 'Sire ... , we have taken an unu-
sual step in the way we have expressed our grievances, but this is so that we
may be listened to by Your Majesty .... ' Their overriding grievance was
against the tax farmers and tax officials, who 'have sent among us a thousand
thieves who eat up the flesh of the poor husbandmen to the very bones, and it
is they who have forced them to take up arms, changing their ploughshares
for swords, in order to ask Your Majesty for justice or else to die like men' .
Shaken by the rebellion, the Crown organized its faithful servitors. The
royal printer, F. Mettayer, published a statement by the 'inhabitants of the
town of Poitiers', denouncing the 'seditious' commune of Perigord. The
Poitiers men declared that 'We know, as Christians and loyal Frenchmen, that
the glory of Kings is to command, while the glory of subjects, whoever they
may be, is to obey in all humility and willing submission ... following God's
express commandment'. All the people of France know that the king is the
life and soul of the state. The king is directly guided by the Holy Spirit, and
further, 'by the superhuman decisions of your royal mind and the miracles
accomplished in your happy reign, we perceive plainly that God holds your
heart in his hand'. There is therefore only one explanation for the rebellion,
concluded the Poitiers loyalists: the rebels must be tools of Satan.
Not all the Catholics agreed, nor even the Catholic clergy of France. In
1639, an armed rebellion broke out in Normandy, resting on two demands: an
opposition to oppressive taxation, and a call for Norman autonomy as against
the centralized Parisian regime. It was a multi-class movement of the rela-
tively poor, grouped together in an 'army of suffering', and calling them-
selves the Nu-Pieds - the barefoot ones - after the salt-makers in the south-
western Norman region of Avranches, who walked barefoot on the sand. The
general of the army was a mythical figure named Jean Nu-Pieds; the actual
directorate of the army consisted of four priests from the Avranches area, of
whom the leader was Father Jean Morel, parish priest of Saint-Gervais.
Morel called himself 'Colonel Sandhills', but he was a poet-propagandist as
well as army commander. In his 'manifesto of the High Unconquerable
Captain Jean Nu-Pieds, General of the Army of Suffering', directed against
the 'men made rich by their taxes', Father Morel wrote:

And I, shall I leave a people languishing

The liberal reaction against mercantilism in France 257

Beneath the heel of tyranny, and allow a crowd of outsiders [non-Normans]

To oppress this people daily with their tax-farms?

The reference to 'outsiders' shows the continuing strength of particularist, or

separatist national movements in France, in this case Normandy. The Norman
and croquants movements were rising against centralizing Parisian imperial-
ism imposed only recently on independent or autonomous nations as much as
against the high taxes themselves.

9.2 Claude Joly and thefronde

The most prominent rebellions in the mid-seventeenth century France were
those of the nobles and the judges and known as the fronde. The leading
theoretician of the parliamentary Uudges') fronde was Claude Joly, whose
Receuil de maximes veritables was published in 1653. Joly's treatise was a
collection of constitutionalist maxims, remnants of a pre-absolutist age, and
included trenchant attacks on two contributions of Cardinals Richelieu and
Mazarin to political thought and practice in France. One was the new notion
that the king is rightly the master - in effect the owner - of the persons and
property of all inhabitants of France. The other was the Machiavellian view
that successful public policy requires the systematic use of immoral means.
The king's power, warned Joly, is limited and not automatically sanctioned
by divine law. Frenchmen possess just title to their lives and properties, and
are not the slaves of a despot or tyrant. The king's original divine power is
mediated through the French people, Joly added, and the king cannot right-
fully tax the French without the consent of the states-general. The fact that
Joly was reviled by the king and his party as a rebel and a traitor, he declared,
shows that the old constitution has been overcome by new views holding the
king to have unlimited authority above all law. For Joly, this new view was
'pure usurpation', bred in the monstrous cauldron of 'Machiavel' .

9.3 A single tax

In the late sixteenth century, Jean Bodin and others had raised the question of
removing many or all of the crippling network of taxation, and substituting a
single universal direct tax proportionate to property or income. With taxes far
higher and more oppressive by the mid-seventeenth century, the call for a
simpler, single direct tax was heard once again. Not only the people, but even
the Crown, would benefit by eliminating a legion of unproductive and para-
sitic tax farmers and other tax officials.
One of the earliest of these tax reformers was Isaac Loppin, who published
Les mines gallicanes in 1638. The tract went through four editions, including
one during the fronde era in 1648, and directly influenced later tax reformers.
Loppin explained how all members of society, from the poorest to the king,
258 Economic thought before Adam Smith

suffered from the depredations of the tax officials: 'without excepting even
the sacred person of His Majesty, there is not a single inhabitant of his
Kingdom who, from the top of his head to the soles of his feet, does not carry
some vestment or eat some food which is not burdened by the said subsidies
and imposts'. Loppin urged the abolition of all existing taxes, and their
replacement by a small fixed tax per year on the wealthiest 10 per cent of the
Loppin's pamphlet greatly influenced a one-time assistant to the secretary
of state for foreign affairs, the Sieur de Bresson. Bresson addressed a tract to
King Louis XIV in 1675, entitled Propositions au Roi. He realistically de-
nounced the tax 'officials and exacters' as having 'no other goal than their
private interests' . He then pointed out that the king himself was at the mercy
of the tax collectors, and repeated the above quotation from Loppin word for
word. Bresson divided up the wealthiest 10 per cent or so of the non-privi-
leged into 19 income classes, and suggested a single direct tax upon them,
graduated by class.
In the meanwhile, in 1668, Geraud de Cordemoy urged his own single tax
plan upon the government. In his Letter Concerning the Reform of State,
Cordemoy urged a single head tax, payable by everyone. He set forth the plan
in the form of a dream recounting an ideal state in a distant land, a land
enjoying such a single head tax (or capitation) paid 'by each person' for the
'charges and necessities of state' . Furthermore, in an unusual twist, Cordemoy
declared that such a head tax would be 'voluntary', since everyone would
know that he was much better off then he had been in the current, existing
An immensely popular work, written about the same time, was Paul Hay,
Marquis du Chastelet's Traite de La politique de La France. The Traite was
written in 1667, with copies circulating throughout France until its publica-
tion two years later. Attacking the oppressive burden of taxation, Chastelet
caBed for a tax on property extending to the previously exempt estates of the
nobility, and the transformation of the onerous salt tax into a universal direct
tax on income. He also urged relief of the tax burden on the peasantry by
accepting payment in kind as a legal substitute for specie.
A more radical plan, originating in the late 1650s, was conceived by a
marshall of France, and governor of the principality of Sedan, Abraham de
Fabert. Fabert died in 1662, but in 1679, an unknown author presented the
Fabert plan to the chancellor of France. Fabert had called for transformation
of the salt tax into a graduated direct tax upon the non-privileged members of
society. This plan was not designed as a single tax, but 'all new taxes' could
be abolished, and other taxes could be brought down to their original rates.
Reminiscent of Bresson, Fabert's plan was to divide the non-privileged French-
men into 30 income classes, the tax graduated by class. Collection costs for
The liberal reaction against mercantilism in France 259

enforcing the tax would be reduced to a minimum, and the king would be
liberated from 100 000 'blood-sucking' tax officials. In 1684, a second edi-
tion of the Fabert-based pamphlet added a substantial amount of statistical
backing to the plan.

9.4 Rising opposition to collectivism by merchants and nobles

The imposition of Colbert's regime of statism, monopoly and prohibitive
tariffs, combined with Louis XIV's high taxation and centralization, gave
rise, by the late 1660s, to a growing tide of opposition by merchants and
nobility alike. An important compendium of criticisms was the anonymous
treatise, Memoires pour servir it l'histoire, published in 1668. The Memoires
comprise the first extended published polemic against Colbert and Colbertism.
Politically, the author denounced Colbert for substituting centralizing innova-
tions for the old constitution. Attacking Colbert's policies across the board,
especially tariffs and monopolies, the book pointed out that the French re-
fusal to purchase from the Dutch had induced the Dutch to cease purchasing
from France. On trade, the Memoires made the important point that the
Colbertian ideal of national self-sufficiency was contrary to natural law, since
providence had created a great diversity of natural resources throughout the
world, in order that mankind be united by the bonds of mutual interdepend-
ence through international trade.
After an upsurge of denunciations of Colbert in the late 1660s, the control-
ler-general reacted by cracking down on all dissent. In consequence, when
Colbert died on 6 September 1683, there was intense joy throughout France,
and especially in Paris. In fact, only protection by the soldiery prevented the
populace from demonstrating their attitude by dragging Colbert's body through
the streets of Paris. Many oppressed Frenchman exulted that a new dawn had
arrived: 'Taxes would cease and the Golden Age would return'.
Such was not to be, however, and absolutism and consequent economic
distress became even worse. But the death of Colbert al10wed a raft of dissent
to arise once more. A torrent of hatred poured out against Colbert's son,
nephew, and other of his hand-picked successors. l The outpouring of opposi-
tion, encouraged by official inquiries and investigations of the Colbertian past,
was not merely personal, however. It was also in opposition to the mercantilism
stifling the economy. In May 1684, a nobleman accused Colbert of being
responsible for the 'ruin of finance and trade'. The establishment of subsidized
and privileged manufactures 'has deprived commerce of liberty ... and denied
merchants the means to attract money from abroad'. The high protective tariffs,
the unknown nobleman pointed out, crippled foreign demand for French farm
products, and thereby reduced the French farmers to penury.
This line of attack on Colbertism was developed in the following year by
Gatien de Courtilz de Sanras, Sieur du Verger, who published a book on The
260 Economic thought before Adam Smith

New Interests of the Princes ofEurope. Trying to bolster domestic producers,

the French government had only succeeded in wrecking them by crippling
their export markets. This popular work had gone into four editions by 1689.
In the same year, the famous collection of tracts, published in Amsterdam,
Les soupirs de la France esclave (The Sighs of an Enslaved France) also
inveighed against protective tariffs as leading to misery and the crushing of
Particularly eloquent in the Soupirs collection was the attack on Colbertism
by the merchant Michelle Vassor, who wrote:

the king by the frightful and excessive taxes which he levies on all goods has
drawn to himself all the money, and commerce has dried up. There are no rigors
and cruelties which have not been employed upon the merchants by the farmers of
the customs, a thousand trickeries to find grounds for making confiscations ...
Besides this, certain merchants, through the favor of the Court, put commerce into
monopoly and get privileges given to them to exclude all the others ... And finally
the prohibition of foreign goods, far from turning out well for commerce, is, on
the contrary, what has ruined it. .. And all through this the despotic and sovereign
power which prides itself on every whim, on reordering everything and reforming
all things by an absolute power. 2

During this depressed period, the directors of Colbert's French East India
Company denied, in 1685, that they had caused the hard times by exporting
specie in order to import goods from the Indies. Arguing for 'freedom of
trade' in their Responses aux memoires, when they really only valued their
own freedom to import from their privileged monopoly position, the directors
yet tapped an important vein of free trade thought:

Experience has shown that trade cannot be conducted without a total liberty and
with a mutual correspondence with foreign countries. The moment we... violated
[trade] ... the foreigners withdrew. They attracted French workers and established
our manufactures in their country ... and have dispensed with ours.

The directors also defended vigorously their practice of exporting specie in

exchange for Asian imports. They escalated their reply by pointing out that in
Holland (always a country whose prosperity and trade was admired and
en vied during the seventeenth century)

the ports are always open for the entry and exit of specie with every possible
liberty ... moreover, in Holland the same liberty is accorded for the export of
money in the coin of the country. It is this great freedom which attracts abundance
to the point where it is and renders them [the Dutch] masters of all trade.

During the intense merchant agitation for freedom of trade and enterprise
during the 1680s, Louis XIV's intendant at Rouen reported on advice given
The liberal reaction against mercantilism in France 261

him by two leading merchants of the city. On 5 October 1685, Rene de

Marillac wrote to the controller-general that the two merchants had declared:

The greatest secret is to leave trade entirely free; men are sufficiently attracted to
it by their own interests ... Never have manufactures been so depressed, and trade
also, since we have taken it into our heads to increase them by way of authority.

One of these two merchants, Thomas Le Gendre, was supposed to have been
the first, during a slightly earlier period, to have coined the famous phrase,
laissez-faire. The great late eighteenth century laissez-faire thinker and states-
man, Anne Robert Jacques Turgot, reports as a family tradition that Le
Gendre had told Colbert: 'Laissez-nous faire' (leave us alone). Turgot's afflu-
ent grandparents were close friends of the immensely wealthy Le Gendre and
his family, and they also had mutual business dealings.
Thomas Le Gendre (1638-1706), coiner of the phrase laissez-faire as
applied to policies and the economy, was the most eminent of a long line of
merchant-bankers traced back to the early sixteenth century. A multi-million-
aire, Le Gendre owned vast interests in Africa and the New World, was the
leading importer of aluIn from the Levant, and was frequently called upon to
arbitrate disputes between merchants at home and abroad.
Despite his wealth, multi-national commercial connections, and public
honours, Thomas Le Gendre had what seemed to be only a negative rather
than positive influence upon the French government. Time and again the
Crown refused to allow him permission to send vessels abroad or to load
merchandise on to foreign ships. This treatment only changed in the 1690s,
when the government, engaged in war with Protestant England and Holland,
made use of Le Gendre and other ex-Protestants to trade with their contacts
in those countries while the war was going on.
Not only the merchants, but also some intendants, were joining the
laissez-faire camp during the 1680s. On 29 August 1686 the intendant in
Flanders, Dugue de Bagnols, wrote a bitter protest against a decree of the
previous year levying a 20 per cent tariff on imports from the Levant,
except for goods carried on French ships from the Middle East that had
entered the ports of Marseille or Rouen. Dugue pointed out that textile
firms in northern France should not have to pay more for their imported
thread by being forced to buy it from inefficient French ships. And all to
subsidize Marseille merchants and shippers who could not compete suc-
cessfully with the English and Dutch in the Levant! Dugue generalized this
insight into a laissez-faire position:

Trade can flourish and subsist only when merchants are free to procure the
merchandise they need in the places where they are [sold] at the lowest price, and
every time we wish to compel them to buy in one place at the exclusion of all
262 Economic thought before Adam Smith

others, merchandise will become more expensive and trade will consequently fall
into ruin. 3

9.5 The merchants and the council of commerce

In June 1700, King Louis XIV, seeking advice from the nation's leading
merchants, established a council of commerce, in which merchants of ten
leading towns elected ten deputies who would serve as a kind of advisory
economic parliament. The king soon came to regret this step, for the mer-
chants' representatives seized the occasion to unleash a torrent of attack
against the mercantilist polices developed by the Sun King. 4
In particular, the enraged merchants zeroed in on the grants of monopoly
privilege bestowed by the government on chartered companies. Pointing out
that such monopolies restrict trade and raise prices, a number of merchants
declared: 'It is a most certain maxim that nothing but competition and liberty
in trade can render commerce beneficial to the State; and that all monopolies
or traffic appropriated to companies exclusive of others are infinitely burden-
some and pernicious' .
The most consistent and most radical of the merchants' voices was the
deputy from the western port city of Nantes, Joachim Descazeaux du HaIlay,
a wealthy shipper and merchant and former associate of Thomas Le Gendre.
Arguing vehemently against privileged monopolies that restrict trade,
Descazeaux. widened his argument into a general plea for freedom and free
competition. Free competition, Descazeaux pointed out, benefits the public
by supplying abundant goods at low prices. Even business losses, he declared
perceptively, benefit the public, since they reflect plentiful production at low
prices. Furthermore, liberty causes innovations and fuels the spirit of enter-

Liberty is the soul and element of commerce; she excites the genius and applica-
tion of merchants who never cease to meditate on new methods to make discover-
ies and found enterprises. [Liberty] kindles a perpetual movement which produces
abundance everywhere. The moment we limit the genius of merchants by restric-
ti ons, we destroy trade.

9.6 Marshal Vauban: royal engineer and single taxer

The bluff, hearty, patriotic Marechal Sebastian Le Prestre, Seigneur de Vauban
(1633-1707), was scarcely a fervent or militant oppositionist to royal or
Colbertist policies. The leading military engineer in France, the man who
constructed the mighty military fortifications guarding the French state, en-
nobled by Louis XIV for his services, was scarcely an opponent of the
Crown. Although a loyal monarchist and absolutist, Vauban, after revocation
of the Edict of Nantes in 1685, grew deeply troubled at the policies of Louis
XIV, especially the crippling system of taxation as well as the oppression of
The liberal reaction against mercantilism in France 263

the Huguenots. Upon the revocation, the naive Vauban, convinced that the
good king was surrounded by evil or purblind advisers, wrote a Memoire for
the recall of the Huguenots' addressed to the king. Vauban pointed out that
the revocation had disrupted trade and commerce, and was causing opposi-
tion to the monarchy itself.
The heedlessness of the king did not daunt Vauhan, who continued to write
similar pleas to King Louis. Finally, at the end of his life, in 1707, this man
who had risen from birth in poverty in 5t Leger to become the land's greatest
military engineer, a marshal and a nobleman, published his comprehensive
treatise, Projet de dixme royale (Project for a royal tithe). Vauban proposed
the abolition of most of the oppressive network of taxation, and its replace-
ment by a single tax, a proportional tenth of the income of each subject. The
reasoning was that the state provided the people with the service of security,
and that those who receive such service should pay accordingly. One won-
ders, however, how anyone can demonstrate that those who receive such a
service are enjoying the service in proportion to their income. Furthermore,
every other service on the market is paid for, not in proportion to the buyer's
income, but in a uniform single price, paid by one and all. The purchasers of
bread, or automobiles, or stereo sets, pay a single price for each product, and
not in proportion to their income or wealth. Why then do so for the alleged
service of security?
At any rate, Vauban was highly effective in pointing out that the impover-
ished producers of the country were shouldering a large part of the burden of
taxation, and was eloquent in urging their relief.
Vauban refused to publish the Dixme royale widely in 1707, and only
circulated a small number of copies among friends. This did not save the
aged marshal from Louis XIV's wrath, however. The king's censors and
police condemned the book, and the publishers were hunted down and pun-
ished. Marshal Vauhan died on the day the king's order was executed.

9.7 Fleury, Fenelon, and the Burgundy circle

During the early 1670s, the devout Abbe Claude Fleury (1640-1723), a
young theologian, moralist, and man of letters, launched an influential oppo-
sition to the absolutism and mercantilism of Louis XIV. In a small pamphlet,
Pensees politiques, Fleury upheld the agrarian ideal and opposed the mercan-
tilist forced subsidization of industry. Furthermore, in a companion work,
Reflections on the works of Machiavelli, Fleury attacked Montaigne-type
scepticism, which resulted in endorsing an unrestrained exercise of power
over depraved men who were virtually devoid of reason. He also denounced
Machiavelli's view that politics should be divorced from ethics. Combining
the latter themes, Fleury contended that man can use reason to take the path
of justice and virtue, while Machiavelli's prince was a godless tyrant who
264 Economic thought before Adam Smith

had no desire to lead his subjects to happiness. In contrast to Machiavelli's

view that 'men are bad', Fleury countered sensibly that 'they are for the most
part neither very bad nor very good', and that the ruler had the duty to
improve their virtue and happiness.
The outstanding clerical opponent of absolutism and mercantilism in late
seventeenth century France, however, was not so much Fleury as his friend
and student, Fran~ois de Salignac de la Mothe, Archbishop Fenelon of Cambrai
(1651-1715). Fenelon led a powerful cabal at court who were deeply op-
posed to the absolutist and mercantilist policies of the king and determined to
reform them in the direction of free trade, limited government and laissez-
faire. By means of his post as religious instructor to the king's mistress,
Madame de Maintenon, 5 Fenelon got himself appointed in 1689 as preceptor
to the royal children, in particular the young Duke of Burgundy, grandson of
Louis XIV, who seemed destined one day to be king. Assisted by Fleury,
Fenelon made the duke into a disciple, surrounding him with ardent
oppositionists to the policies of the Sun King.
In 1693, Fenelon, incensed at the continuing wars against the English and
Dutch, wrote the king an impassioned and hard-hitting though anonymous
letter, which he probably sent only to Madame de Maintenon. Blaming the
king's evil ministers, he declared:

Sire... for the past thirty years your... ministers have violated and overturned all
the ancient maxims of state in order to raise your power, which was theirs because
it was in their hands, to the highest possible point. We no longer heard of the State
nor of its rules; they only spoke of the King and his pleasure. They have increased
your revenues and your expenditures to the infinite. They have elevated you to the
heavens ... and impoverished all of France so as to introduce and maintain an
incurable and monstrous luxury at Court. They wanted to raise you on the ruins of
all classes in the State, as if you could become great by oppressing your sub-
jects ...

The king's ministers, Fenelon continued, only wish to crush all who resist.
They have made the king's name 'odious', have wanted 'only slaves', and
have 'caused bloody wars'. The wars and their attendant taxes have crushed
trade and the poor, driving the people to desperation 'by exacting from them
for your wars, the bread which they have endeavored to earn with the sweat
from their brows' .6
Fenelon's magnum opus was his political novel, Telemaque, written for the
edification of the young Duke of Burgundy, on whom he and his confreres
pinned all the hopes for the radical liberalization of France. Telemaque was
written during 1695 and 1696, and published without his permission in 1699.
Telemaque was a mythical young prince, who travelled through the world of
antiquity seeking instruction on the wisest forms of government. What
The liberal reaction against mercantilism in France 265

TeIemaque learned were the lessons of pure laissez-faire. For example, young
Telemaque asked Mentor, a wise man among the Phoenicians, how that
people was able to flourish so remarkably in world commerce. Mentor an-
swered, laissez-faire:

Above all never do anything to interfere with trade in order to turn it to your
views. The Prince must not concern himself [with trade] for fear of hindering it.
He must leave all profits to his subjects who earned them, otherwise they will
become discouraged ... Trade is like certain springs; if you turn them from their
course they will dry up. Profit and convenience can alone attract foreigners to
your shores; if you make trade difficult and less useful for them they will gradu-
ally withdraw and not return ... 7

Similarly, in the land of Salente, 'the liberty of commerce was entire', by

which Fenelon explicitly meant the absence of state interference in domestic
as well as foreign trade. Every good entered and left the country with com-
plete freedom; trade 'was similar to the ebb and flow of the tide' .
In his Treatise on the Existence ofGod, Fenelon attacked mercantilist nation-
alism by stressing the unity of all peoples dispersed over the earth. Moreover,
he stressed that human reason is 'independent and above man, [and] is the
same in all countries'. And just as God unites all peoples through a common
and universal reason, so the sea and the earth unite mankind by providing
communication and resources which can be exchanged for one another. Fenelon
waxed eloquent on natural specialization and free trade uniting all peoples:

It is the effect of a wise overruling Providence that no land yields all that is useful
to human life. For want invites men to commerce, in order to supply one another's
necessities. Want therefore is the natural tie of society between nations; otherwise
all peoples would be reduced to one sort of food and clothing, and nothing would
invite them to know and visit one another.

Following his mentor Fleury, Fenelon stressed the importance and produc-
tivity of agriculture, and attacked rulers for impoverishing the countryside
through crippling taxation, and for diverting resources from agriculture to
luxury products.
Fenelon was eloquent im his attack on tyranny and absolutism. Absolute
monarchs, he thundered:

take all and ruin everything. They are sole possessors of the entire state, but the
whole realm languishes. The countryside is uncultivated and almost deserted,
towns diminish every day, trade stagnates ...The King's absolute power creates as
many slaves as he has subjects ... This monstrous power swollen to its most violent
excess cannot endure; it has no support in the heart of the people ... At the first
blow the idol will fall, crack and be crushed underfoot. Contempt, hate, venge-
ance, defiance, in a word all passions will unite against so odious a rule.
266 Economic thought before Adam Smith

To Fenelon, 'war is the greatest of evils', and France's pernicious policy of

constant wars was the result of her nationalist and mercantilist economic
policies. Cursed be those rulers, declared Fenelon, who augment their power
at the expense of other nations and who seek a 'monstrous glory' in the blood
of their fellow men.
To educate the young duke of Burgundy on the evils of war, Fenelon
engaged a man who was called 'one of the cleverest men of the century'.
Franc;ois Le Blanc had published a massive treatise on money and coinage in
1690 (An Historical Treatise on the Moneys of France from the beginning of
the Monarchy until the Present). There Le Blanc had condemned kings for
engaging in debasement for their monetary profit. Fenelon commissioned Le
Blanc to write a tome for the young duke on all the treaties between the
nations of Europe, and the causes and consequences of all the wars that
ensued, as well as the ways they might have been avoided. Unfortunately, Le
Blanc died before he could finish this monumental task.
One of the key figures in the Burgundy circle was Charles de Sainte-
Maure, the duc de Montausier. Montausier was governor of the royal dau-
phin, and Le Blanc (before taking on the book) and Abbe Fleury were both
employees in the service of Montausier. Le Blanc's place in teaching the
duke had been preceded by Pierre Daniel Huet, bishop of Avranches. Huet, a
friend of Le Blanc, denounced French mercantilist and protectionist policies
in 1694, and praised the free trade that had brought prosperity to the Dutch.
In 1711, the Grand Dauphin, son of Louis XIV, died, and the Burgundy
circle was overjoyed, since the duke was now in line for the throne to succeed
the aged Sun King. But tragedy struck the following year, when the duke, his
wife and his eldest son were all struck dead of measles. All the hopes, all the
plans, were cruelly destroyed and, Fenelon wrote to a friend in despair, 'Men
work by their education to form a subject full of courage and ornamented by
knowledge; then God comes along to destroy this house of cards ... '.
The tragic end of the Burgundy circle illuminates a crucial strategic flaw in
the plans, not only of the Burgundy circle, but also of the physiocrats, Turgot,
and other laissez-faire thinkers of the later eighteenth century. For their hopes
and their strategic vision were invariably to work within the matrix of the
monarchy and its virtually absolute rule. The idea, in short, was to get into
court, influence the corridors of power, and induce the king to adopt libertar-
ian ideas and impose a laissez-faire revolution, so to speak, from the top. If
the king could not be persuaded directly, then a new king's ideas and values
would be formed from childhood by liberal preceptors and tutors.
Reliance on the good will of the king, however, suffered from several
inherent defects. One, as in the case of the Duke of Burgundy, was reliance on
the existence and good health of one person. A second is a more systemic flaw:
Even if one can convince the king that the interests of his subjects require
The liberal reaction against mercantilism in France 267

liberty and laissez-faire, the standard argument that his own revenue will
increase proportionately to their prosperity is a shaky one. For the king's
revenue might well be maximized, certainly in the short run and even in the
long run, by tyrannically sweating his subjects to attain the maximum possible
revenue. And relying on the altruism of the monarch is a shaky reed at best. For
all these reasons, appealing to a monarch to impose laissez-faire from above
can only be a losing strategy. A far better strategy would have been to organize
a mass opposition from below among the ruled and exploited masses, an
opposition that would have given laissez-faire a far more solid groundwork in
adherence by the bulk of the population. In the long run, of course, mass
opposition, even revolution, was precisely what happened to France, a revolu-
tion from below that was partially if not largely inspired by laissez-faire ideals.
The erudite and sophisticated laissez-faire thinkers of the seventeenth and
eighteenth centuries, however, would have rebuffed such a suggested strategy
as certainly inconvenient and probably lunatic, especially in the light of the
failure of the various inchoate peasant and other fronde rebellions of the mid-
seventeenth century. Not least of all, men of influential and privileged status
themselves are rarely inclined to toss all their privileges aside to engage in the
lonely and dangerous task of working outside the inherited political system.

9.8 The laissez-faire utilitarian: the Seigneur de Belesbat

One of the influential anti-mercantilist and pro-laissez-faire thinkers of the
last decades of Louis XIV was Charles Paul Hurault de l'Hopital, Seigneur
de Belesbat (d. 1706). The great-grandson of a chancellor of France, Belesbat
was an influential member, during the 1690s, of an oppositional political
salon in the Luxembourg palace in the Luxembourg gardens district of Paris.
The salon met weekly at the home of Belesbat's first cousin, Fran~ois
Thimoleon, the abbe de Choisy.
In the autumn of 1692, Belesbat presented six memoirs to Louis XIV,
copies and extracts of which were reproduced throughout France. Belesbat,
too, focused on the wars with the Dutch as being the key to the economic
problems of France. States became wealthy, advised Belesbat, not by seizing
or destroying the commerce of other nations, but by encouraging trade that
conformed to the natural interest of the nation. Instead of the French govern-
ment trying artificially to capture Dutch commerce, it should allow its own
agriculture to flourish.
Belesbat, too, emphasized that God had woven all peoples into an inter-
dependent network of reciprocal advantage by means of trade and specializ-
ation: 'There is nothing that one [country] lacks which the others do not
produce.... God ... having created men for society, has so well divided them
that they cannot do without one another'. Restrictions on trade by govern-
ment only crippled this natural interdependence; therefore, merchants should
268 Economic thought before Adam Smith

be free to pursue 'the commerce of their choice'. The direction of economic

activities in each country is usually determined by the natural resources and
the type of capital investment in that area.
It is not the case, concluded Belesbat, that trade in one country benefits one
party at the expense of others. Instead, the reverse is true. Moreover, freedom
for merchants in domestic trade was as important as in foreign trade. The
network of trade and exchange is internal as well as external. Furthermore, in
a prefigurement of the Hayekian argument for the free market, Belesbat
noted, as Professor Rothkrug points out, that

Every transaction, either domestic or foreign, required complete freedom because

it was carried out in special circumstances by merchants whose fortunes depended
partially upon the secret and unique procedures by which each conducted his
business. 8

State regulation, then, far from protecting the market, would cripple the
liberty necessary to any prosperous trade. Natural resources, Belesbat ex-
plained, are worthless without people to cultivate them and to engage in trade
and commerce. Belesbat then engaged in a sophisticated analysis of the
elements necessary for successful market activity:

We call commerce an exchange between men of the things they mutually need ... In
both [domestic and foreign trade] the principles for success are the same. And
despite the fact that there is an infinite number of ways in which to practice trade,
all different, they are founded on a great liberty, large capital investment, a lot of
good faith, much application, and a great secrecy. Each merchant, having his
particular views, in such a way that he who profits from a sale of his products,
does not prevent the one who buys them from profiting considerably by disposing
of them ... Thus the entire success of commerce, consisting as it does in liberty,
large capital investment, application, and secrecy, prevents princes from ever
intervening without destroying the principles.

Thus Belesbat, in addition to a sensitive appreciation of the role of indi-

vidual entrepreneurship and energy by the merchant, and of the mutual profit-
ability of exchange, sees, if only vaguely, that the great variety of individual
trade can yet be analysed correctly in a small number of formal laws, laws or
truths which apply to all entrepreneurship and exchange.
In one vital area, Belesbat advanced significantly beyond the laissez-faire
views of Fenelon and others, who were so opposed to the luxury of the
absolutist court and the nouveau riche bureaucracy that they wished the
government to restrict luxury production and trade. Belesbat swept away
such inconsistent exceptions to laissez-faire. The natural laws of trade, which
for him encompassed considerations of utility, applied to luxury as well as to
all other branches of production and trade.
The liberal reaction against mercantilism in France 269

Belesbat eloquently concluded from his analysis that 'It must be taken as a
principle that liberty is the soul of commerce, without which ... good harbors,
great rivers, and ... fertile [lands] are of no use. When liberty is absent nothing
is of any avail'.9 In short, the government should 'let commerce go where it
wishes' (laissantfaire le commerce que l'on voudra).
The Seigneur de Belesbat made it clear that he grounded his hope of
applying libertarianism in an extreme form of early utilitarianism, a utilitari-
anism that he expected would be applied by the king. The king was urged to
channel people's self-interest into free and harmonious activities by seeing to
it that virtue is rewarded and evil (theftand other interference with trade) is
punished. In that way, men would become accustomed to pursue virtue.
Belesbat went very far in utilitarianism by maintaining that 'justice' was
always and only utility or self-interest. A fatal weakness in his theory was the
confident view that the self-interest of the king, who was supposed to put all
this into effect, was always identical to the harmonious self-interest of his
Belesbat also anticipated the later view that Montaigne-type scepticism
about reason, rather than providing support for going along with state abso-
lutism, teaches men humility so that they will accept liberty and the free
market. Reason, however, is not the sole, and not even the main, motive for
the drive for the exercise of power: acquisition of wealth and privilege would
seem to be moti ve enough. And since there will always be people and groups
who will seek to seize and aggrandize state power for their own purposes,
scepticism towards reason and a rational political philosophy seems more
likely to subvert any determined opposition to statism than to hinder any
statist drive for power.

9.9 Boisguilbert and laissez-faire

The best known of the late seventeenth century French advocates of laissez-
faire is Pierre Ie Pesant, Sieur de Boisguilbert (1646-1714). Born in Rouen
into a high-born Norman family of judicial officers, and a cousin of the poet-
dramatist Corneille brothers, Boisguilbert was educated by the Jesuits, and
eventually purchased two judicial offices at Rquen. He served there as lieu-
tenant-general of the court from 1690 until his ~eath. Boisguilbert was also a
large landowner, businessman, litterateur, trans~ator, attorney and historian.
Boisguilbert was a cOlnbination of genius ~nd crank. His first and most
important work, Le Detail de La France (A petailed Account of France),
published in 1695, was revealingly subtitled Lq France ruinee sous le regne
de Louis XIV (France Ruined Under the Rule 1of Louis XIV).lO Boisguilbert
penned innumerable letters to successive controllers-general of France on the
virtues of free trade and laissez-faire, and on the evils of government inter-
vention. After 1699, Boisguilbert kept hammering away at controller-general
270 Economic thought before Adam Smith

Michel Chamillart for years, but to no effect. Chamillart kept refusing him
permission to print his tomes, but Boisguilbert published them anyway, fi-
nally printing his collected works under the title Le Detail de La France in
1707. In that year, the same year that Vauban's Dixme Royale was censored,
Boisguilbert's work was also outlawed, and its author sent into brief exile. He
returned under promise of silence, but promptly reprinted his book four times
between 1708 and 1712.
Arguing for laissez-faire, Boisguilbert denounced the mercantilist preoc-
cupation with amassing specie, pointing out that the essence of wealth is in
goods not coin. Money, Boisguilbert explained, is just a convenience. Thus
the influx of bullion from the New World in the sixteenth century only served
to raise prices. If nature were left to herself, all men would enjoy plenty and
the government's attempts to improve upon nature only caused havoc. The
simple remedy for the manifold evils under which France was suffering was,
as Professor Keohane puts it: 'for the government to stop interfering with
natural patterns of trade and commerce, and laissez faire La nature. No
superhuman effort for reform was needed, only the cessation of ill-consid-
ered effort' . 11
Collective or social harmony, Boisguilbert wrote, arises from the efforts of
innumerable individuals to advance their self-interest and their happiness. If
the government removed all artificial restrictions upon trade, all participants
would have incentive to produce and exchange, and self-interest would then
be free to do its constructive work. Only the use of coercion or state privilege
pits one self-interest against another, whereas submission to the wise natural
order would ensure harmony between individual greed and universal benefit.
As Keohane summarizes Boisguilbert, 'So long as we do not interfere with
her [Nature's] workings, our attempts to get as much as we can for ourselves
will maximize everybody's happiness in the long run' .12 It is not, then, that
individuals aim at the general good while pursuing their own self-interest. On
the contrary, it is the glory of the natural order that, while individuals aim at
their own 'private utility', they will also promote the interests of all. Al-
though individuals may try to subvert the laws and gain at the expense of
their neighbours, the natural order of liberty and laissez-faire will maintain
peace, harmony, and universal benefit. As Boisguilbert declares, 'But nature
alone can introduce that order and maintain the peace. Any other authority
spoils everything by trying to interfere, no matter how well-intentioned it
may be'. In the free market established by the natural order, 'the pure desire
for profit will be the soul of every market for buyer and seller alike; and it is
with the aid of that equilibrium or balance that each partner to the transaction
is equally required to listen to reason, and submit to it' .
The natural order of the free market prevents any exploitation from taking
place. Thus: 'Nature or Providence [had] ... so ordered the business of life
The liberal reaction against mercantilism in France 27 J

that, provided it is left alone (on le laisse faire) it is not within the power of
the most powerful in buying goods from some poor wretch to prevent the sale
from providing the subsistence of the latter'. Everything works out all right
'provided that nature is left alone (on laisse faire la nature) ... [i.e.] provided
that it is left free and that no one meddles with this business save to grant
protection in it to all and to prevent violence' .13
Boisguilbert also specifically demonstrated the counterproductive results
of government intervention. Thus, when the French government tried to
alleviate hunger by lowering grain prices and controlling trade, all it accom-
plished was to diminish the cultivation and production of grain, and hence to
intensify the very hunger that the government was trying to relieve. Such
intervention, in the summary of Professor Keohane,

would make sense only if grain, like manna or mushrooms, sprang up without
human effort, since it ignores the effects of low prices on the habits of cultivators.
If government simply ceased tampering, the French economy, like a city from
which a siege is lifted, would regain its health. Free to set their own price for
grain, and to import grain freely throughout the land, Frenchmen would be plenti-
fully supplied with bread. 14

In illustrating the nature and advantages of specialization and trade,

Boisguilbert is one of the first economists to begin with the simplest hypo-
thetical exchange: two workers, one producing wheat and the other wool, and
then to extend the analysis to a small town, and finally to the entire world.
This method of 'successive approximation', of beginning with the simplest,
and then extending the analysis step by step, would eventually prove to be
the most fruitful way of developing an economic theory to analyse the eco-
nomic world.
Graphically illustrating the respective workings of power and market,
Boisguilbert supposes a tyrant who tortures his subjects by tying them up
within sight of each other, each surrounded by an abundance of the particular
good that he produces: food, clothing, liquor, water, etc. They would be made
instantly happy if the tyrant were to remove their chains and allow them to
exchange their surplus goods for those of one another. But if the tyrant says,
no he can only remove the chains of his people when some war or other is
settled, or at some future time, he is only adding ridicule and mockery to
their grievous torture. Here, Boisguilbert was bitterly mocking the reply that
Louis XIV and his ministers habitually made to the pleas of reformers and
oppositionists: 'We must wait for the peace'. Again, like the other
oppositionists, war was exposed as the standard excuse for maintaining the
crippling interventions of government.
Like Belesbat, Boisguilbert had no patience with inconsistent reformers
who tried to make an exception to laissez-faire in luxury products. To
272 Economic thought before Adam Smith

Boisguilbert, natural wealth was not just biological necessities; rather 'true
wealth consists of a full enjoyment, not only of the necessaries of life, but
even of all the superfluities and all that which can give pleasure to the
senses' .
In addition, Boisguilbert was perhaps the first to integrate discussion of
fiscal policy with his general economic doctrines. Adopting Vauban's pro-
posal for the elimination of all taxes and their substitution by a single direct
tax of 10 per cent on all incomes, Boisguilbert analysed and bitterly de-
nounced the effects of indirect taxes on agriculture. Heavy taxes on grain, he
pointed out, have raised costs and crippled grain production and trade. For
four decades, he argued, the French government had virtually declared war
on consumption and trade by its monstrous taxation, resulting in severe
depression in every area of the economy.
On the free market, in contrast, everyone benefits, for 'trade is nothing but
reciprocal utility; and all parties, buyers and sellers, must have an equal
interest or necessity to buy or to sell' .
Hence, with Belesbat and Boisguilbert, the focus of the classical liberal
attack on statism shifted from moralistic denunciation of luxury or pernicious
Machiavellism to meeting mercantilist doctrine on its own utilitarian grounds.
Even setting aside classical morality, then, utility and general happiness require
the private property and laissez-faire of the natural order. In a sense, old-
fashioned natural law had been extended to the economic sphere and to the
meshing of individual utility and self-interest through the working of the free
market. In contrast to devout mystics like Fenelon, Belesbat and Boisguilbert
were in harmony with the new mechanistic cosmologies of Isaac Newton and
others of the late seventeenth century. God had created a set of natural laws of
the world and of society; it was the task of man's reason, a reason universal to
all, regardless of nation or custom, to understand those laws and to achieve
their self-interest and happiness within them. In the economy, free trade and
free markets, through the harmony of reciprocal benefits, advanced the interest
and happiness of all by each seeking his own personal utility and self-interest.
The Golden Rule, and absence of violence, was the natural moral law that
uncovered the key to social harmony and economic prosperity. While such
analysis was not in itself anti-Christian, it certainly replaced the ascetic aspects
of Christianity with an optimistic, more man-centred, creed; and also it was
consistent with the rising religion of deism, in which God was the creator, or
clock-winder, who created the mechanism of the universe and its self-subsist-
ent natural laws, and then retired from the scene.
As Professor Spengler has pointed out:

the eighteenth century conceptualized the economic (or social) universe. It made
the hidden processes of the social order visible even as the seventeenth had
The liberal reaction against mercantilism in France 273

become aware of those of the physical order and made them visible; it generalized
to the realm of man the notion of the 'frame' hidden behind 'the most common
Phenomena' and the 'Invisible Hand' by which 'Nature works' in 'all things'.

As for Boisguilbert, his contribution was to be

among the first, if not the first, to conceive, albeit imperfectly, of the system of
relations that underlies the economic order... His contribution consisted in his
sequestering (however imperfectly) the economic order from the total societal
system, in becoming aware of the comparati vely autonomous character of this
order, in discovering the essentially mechanical and psychological connections
binding men together in an economic order and in drawing attention to the manner
in which the economic order was subject to disturbances by impulses originating
in the political order. IS

It should also be mentioned that it surely seemed easier to convince the

king and his ruling elite of the general utility of private property and the free
market, than to convince them that they were behaving as the heads of an
immoral and criminal system of organized theft. So that the basic strategy of
trying to convert the king led inexorably to at least a broadly utilitarian
approach to the problems of freedom and government intervention.

9.10 Optimistic handbook at the turn of the century

The rapid spread and even social dominance of these new ideas of laissez-
faire, crypto-deism, and the morality of utility and the Golden Rule, may be
seen in the Dialogues, a virtual handbook of fashionable manners and ideas
for the social climber, published in 1701 by the young litterateur, Nicholas
Baudot de JuiUy. In Dialogues, Baudot, son of a tax farmer in Vendome, after
lauding the manners taught in fashionable salons, proceeds to the ruling ideas
of the day, where he vulgarizes the laissez-faire doctrine into one grounded in
a frank and candid hedonism. The desire for pleasure and for the avoidance
of pain was grounded in the natural drive for self-preservation. Furthermore,
the God of Christianity, in the hands of Baudot, became a quasi-deistic god
who has provided 'all nature' as a 'great feast where in His inexhaustible
goodness God has convened us'. The Garden of Eden had been a realm of
enjoyment and sensate pleasure; the purpose of Jesus's arrival on earth was to
recall mankind to that original enjoyment. Asceticism, furthermore, causes
economic misery. Specialization, trade, and the pursuit of wealth in the
marketplace were the truest, and therefore the God-given, forms of charity.
As Baudot put it: God had 'purposely permitted us to multiply our needs in
order to cause money to circulate among all men, passing from the purses of
the rich to those of the poor' .
Trade, then, is the genuine charity:
274 Economic thought before Adam Smith

All this [regional specialization and communication] has been so admirably ac-
complished in order to bind men to one another, who in effect should form only
one single family so that the need they would have for one another would accom-
plish among them what charity alone ought to do. It is for this reason that men ... ,
however different in mores, language, and Religion ... are becoming united from
one end of the world to another by reciprocal trade. It is also for this reason that
they exchange equally things which are agreeable and those that which are neces-
sary, so that they can not only sustain life as in a pasture like beasts, but also to
render it sweeter, more humane and more polished by pleasures.

9.11 Notes
1. In his 'Justification of M. Colbert', his nephew, Nicolas Desmaretz, whom Colbert had
wanted to succeed him, wrote angrily that: 'The memory of Monsieur Colbert was at-
tacked with great animosity after his death. At that time all authority was in the hands of
his enemies, and they had the pleasure of exercising their hatred by violent persecution
against all those whom he employed ... ' Quoted by Lionel Rothkrug, Opposition to Louis
XIV: The Political and Social Origins (~lthe French Enlightenment (Princeton, NJ: Princeton
University Press, 1965), p. 223.
2. Quoted in Charles Woolsey Cole, French Mercantilism, 1683-1700 (1943, New York:
Octagon Books, 1965), p. 248.
3. Rothkrug, op. cit., note I, pp. 231-2.
4. In addition to the ten elected deputies, the king appointed two merchants 'representatives'
from Paris. Unsurprisingly, they proved far tamer in their attitudes toward the Crown.
5. Madame Fran~oise d'Aubigne, Marquise de Maintenon (1635-1719).
6. Rothkrug, op. cit., note 1, pp. 267-9.
7. Rothkrug, op. cit., note 1, p. 270.
8. Rothkrug, op. cit., note 1, p. 333.
9. See Rothkrug, op. cit., note 1, pp. 333-4.
10. Under the circumstances, the title of the English translation two years later, The Desola-
tion (~l France, does not seem inaccurate.
11. N.O. Keohane, Philosophy and the State in France: The Renaissance to the Enlighten-
ment (Princeton, NJ: Princeton University Press, 1980), p. 352.
12. Ibid., p. 353.
13. Quoted in Cole, op. cit., note 2, p. 266. Or, in another place: 'il est seulement necessaire
de laisser agir la nature'. (It is only necessary to let nature act.) See Joseph J. Spengler,
'Boisguilbert's Economic Views Vis-a-vis those of Contemporary Riformateurs', History
(~I'Political Economy, 16 (Spring 1984), p. 81n.
14. Keohane, op. cit., note 11, pp. 354-5.
15. Spengler, op. cit., note 13, pp. 73-4. Spengler adds that the term 'invisible hand' was first
used by the English writer Joseph Glanville, in his The Vanity 0.1' Dogmatizing (1661), a
century before Adam Smith used the concept similarly. In his philosophical essays, Smith
treated philosophy as 'representing the invisible chains which bind together' seemingly
unconnected phenomena. Ibid., p. 73n.
10 Mercantilism and freedom in England from
the Tudors to the Civil War

10.1 Tudor and Stuart absolutism 277

10.2 Sir Thomas Smith: mercantilist for sound money 280
10.3 The 'economic liberalism' of Sir Edward Coke 283
10.4 The 'bullionist' attack on foreign exchange, and on the East
India trade 284
10.5 The East India apologists strike back 288
10.6 Prophet of 'empiricism': Sir Francis Bacon 292
10.7 The Baconians: Sir William Petty and 'political arithmetic' 296
10.8 Notes 304

Mercantilism andjreedorn in Englandjrom the Tudors to the Civil War 277

10.1 Thdor and Stuart absolutism

Dominant in English political thought from the early sixteenth to the early
seventeenth century was a form of simplistic and militant absolutist thought
that has been called the 'correspondence theory' or the 'political theory of
order'. This royalist doctrine was fashioned for the Tudor-Stuart age in
which the king struggled to establish his absolute power as against the inter-
national influence of the old religion, Catholicism, and over the Calvinist
Puritans, who had definite republican and populist tendencies. In contrast,
God was now supposed to be speaking through the English king and there-
fore through the head of the Anglican Church.
The basic philosophic groundwork was the 'natural order' - the 'great
chain of being' - which, since the Middle Ages, had been seen as strictly
hierarchical, with God at the head and man as the highest of his material
creatures. But then came the fundamental methodology: flimsy analogy, or
'argument by correspondence'. Just as God was sovereign, and superior to
various ranks of angels and finally to man and then other inferior earthly
creatures in the 'macrocosm', so in the individual 'microcosm', within each
person, the head must be sovereign over the body, and reason and will
dominant over the appetites. Similarly, the father is sovereign over his fam-
ily. More specifically and pointedly in the political realm, the king, the father
of his people, must be sovereign over the body politic.
This flimsy organicist analogy was pushed to great lengths. The head in the
human body 'was' the king in the body politic; health in the former consti-
tuted social well-being in the latter; the circulation of the blood was the same
as circulation of money; rule of the rational soul was royal sovereignty, and
so on. The only 'argument' was correspondence: that the 'governmental' and
social ranking alleged to exist in the heavenly sphere must be duplicated in
earthly government and in social life.
One problem with the argument from correspondence is that freedom of the
human will enters into politics and social life but does not do so elsewhere. It is
rare for the liver to 'rebel' against the head, and yet an important conclusion of
this royalist political philosophy was that political rebellion is as evil and anti-
natural as such 'rebellion' by the liver. Similarly, individual subjects must obey
the divinely appointed monarch, else the divine order collapses into anarchy
and disorder, and corruption and decay then rule in human life.
While the liver has not often rebelled against the head, the royal absolutists
did, of course, have an analogy to fall back on in heavenly government:
Satan's wicked rebellion against the sovereignty of God. Similarly, the great
fact of human history was Adam's Fall, brought on by rebelliousness against
divine authority and by overweening self-pride.
God and the king; Satan, Adam, and rebellious subjects; these were the
analogies and correspondences that the royal absolutists tried to drive home.
278 Economic thought before Adam Smith

Thus, Anglican Church homilies on obedience, in 1547 and 1570, called

obedience to the sovereign 'the very root of all virtues', while 'a wicked
boldness' is the source of all sin and misery. As the homilies stated: all 'sins
possible to be committed against God or man be contained in rebellion',
which 'turn(s) all good order upside down ... '. It is the absolute duty of all
inferiors 'always and only to obey', just as the body obeys the soul, and as
the universe obeys God.
In stark contrast to the scholastics, as well as to Calvinist or Leaguer
monarchomach thinkers, the Anglican preachers of order stressed time and
again that the subjects must obey the king in any and all circumstances,
whether or not the king or his actions were good or evil. There must be no
resistance whatever, even to evil princes. The king is the divinely mandated
representative of God on earth by hereditary right. To question, much less to
disobey the king, therefore, was not only treason but blasphemy. Disobeying
the king is disobeying God. As the influential Mirror for Magistrates, which
went through many editions from 1559 to 1587, maintained: 'God ordains all
magistrates'. Therefore, God ordains 'good when he favoureth the people; and
evil when he will punish them'. In short, good kings are a blessing sent to the
people by God; wicked kings are a punishment equally sent by the divinity. In
either case the duty of the subject is absolute obedience to God's/the king's
commands. 'And therefore whosoever rebelleth against any ruler either good
or bad, rebelleth against GOD, and shall be sure of a wretched end ... '
To the royalist thinkers, the rising claims of individual freedom and the
natural rights of each individual only led to mischief and destruction of God's
rational order. Thus Richard Hooker (c.1554-1600), the leading Anglican
theologian of the sixteenth century, in his famous Laws of Ecclesiastical
Polity (1594-97), lashed out at any notion of individualism. Though himself
a moderate on royal absolutism, Hooker wrote that the idea of every man 'his
own commander' 'shaketh universally the fabric of government, tendeth to
anarchy and mere confusion, dissolveth families, dissipateth colleges, corpo-
rations, armies, overthroweth kingdoms, churches and whatsoever is now
through the providence of God by authority and power upheld' .
One of the most extreme royal absolutists in the Tudor-Stuart era was
Edward Forset (c. 1553-1630), a playwright, owner of the manor of Tyburn, a
justice of the peace and MP. Forset's magnum opus was A Comparative
Discourse of the Bodies Natural and Politic (1606), whose very title reeks of
the argument by correspondence and the political philosophy of order. At
some points, Forset came close to saying that a monarch could never harm
his people: in other words, however evil his deeds may seem, they must
really be good, virtually by definition. Indeed, at one point, Forset came close
to the justification of a king's acts by mystery and power as in the Book of
Job. Thus, as Professor Greenleaf puts it in his discussion of Forset's doc-
Mercantilism andfreedom in Englandfrom the Tudors to the Civil War 279

trine: 'the seemingly evil acts of a ruler were only an appearance the real
nature of which was misconstrued by the fallible minds of the citizens'. 1 The
strong implication, of course, is that the mind of the monarch, in contrast to
that of the lowly citizen, is infallible.
Probably the most intelligent and surely the most influential of the absolutist
order-theorists in seventeenth century England was Sir Robert Filmer (1588-
1653). Towards the end of his life, this obscure Kentish nobleman published a
series of royal absolutist essays in the late 1640s and early 1650s. Then, three
decades later, a Filmer revival took place, his collected essays being published
in 1679 and his most famous work, Patriarcha or the Natural Power of Kings,
written in the late 1630s or early 1640s, was printed for the first time the
following year. Filmer immediately and posthumously became the leading
defender of royal absolutism from the older perspective of order theory.
Filmer angrily rejected the idea that 'by law of nature all men are born
free' as 'heathen' doctrine. Linking individualism and self-direction to sinful
rebellion against God, Filmer warned against the 'very desire for freedom
which caused Adam's fall from grace.'2
Most notable in Filmer was his searching critique of the rising contractarian
doctrine, which laid the foundation of, and therefore justified, the state in
some original social contract. Thomas Hobbes (1588-1679) had spent all his
life in service as a tutor, companion, and intellectual guide to the Cavendishes,
who were related to the royal Stuart family. Hobbes had worked out a
contractarian justification for royal absolutism during the 1640s.
Filmer spotted crucial flaws in Hobbes's social contract theory which were
to apply just as fully to John Locke's libertarian version four decades later:

Filmer asked how likely it was, ... that all men would agree to a contract, as was
necessary before it could become universally binding; he wanted to know how
and why a contract should bind all subsequent generations; he suggested it was
unreasonable to invoke the specious notion of tacit consent. .. 3

Filmer also trenchantly criticized the growing classical liberal idea of ground-
ing government in the consent of the governed. Governments, he pointed out,
could not then be stable, for governments could sometimes find that consent
to be withdrawn. Once concede the power of the people to consent as well as
the natural law of 'equal freedom from subjection', and the logical conse-
quence must be anarchism. For then

every petty company hath a right to make a kingdom by itself; and not only every
city, but every village, and every family, nay, every particular man, a liberty to
choose himself to be his own King if he please; and he were a madman that being
by nature free, would choose any man but himself to be his own governor. Thus to
avoid the having but of one King of the whole world, we shall run into a liberty of
280 Economic thought before Adam Smith

having as many Kings as there be men in the world, which upon the matter, is to
have no king at all, but to leave all men to their naturalliberty.4

It should be noted that Filmer and other absolutists of the era found great
inspiration in the French theorist Jean Bodin, who has been called the politi-
cal writer most favourably and most often cited in England during the first
half of the seventeenth century.

10.2 Sir Thomas Smith: mercantilist for sound money

The honour - if that be the proper term - of being the first English mercantil-
ist writer should have gone, for four centuries, to Sir Thomas Smith the Elder
(1513-77). Instead, his remarkable work, A Discourse on the Commonwealth
of this Realm of England, written in 1549 and published anonymously in
1581, was at first unidentified, and since its 1893 reprint has been incorrectly
attributed to another Tudor official, John Hales (d. 1571).
Thomas Smith was born into a poor family of small shepherds in the
county of Essex. Impoverished but brilliant, Smith managed to enter Cam-
bridge, where his scholarly abilities were soon recognized. There he rose to
become Regius professor of civil law, and then vice-chancellor of the univer-
sity. Smith was a notable orator and a learned and brilliant polymath, who
wrote books on Greek pronunciation and English spelling, and was deeply
interested in mathematics, chemistry, linguistics and history.
Smith embarked on a career as politician and bureaucrat by becoming a
secretary under the protectorate of Lord Somerset, from 1547 to 1549. Though
an Anglican, Smith was a moderate who cared little for religious matters, so
he was able to serve as Privy Councillor under Catholic Queen Mary, on the
recommendation of his old Cambridge colleague, the Catholic Bishop Stephen
Gardiner. Under Queen Elizabeth, his influence continued through the power-
ful position at court of his old Cambridge student, Sir William Cecil, later
Lord Burghley. Smith, however, was often out of power, a fate helped by his
arrogant, boorish and feisty personality.
Thomas Smith was a bitter critic of debasement, and he therefore became a
vocal opponent of his mentor, Lord Somerset's, policy of repeated debase-
ment in order to acquire increased revenue for the Crown. Sent into exile
from the court in 1549, Smith brooded and then did what was characteristic
of him: marshalled and wrote down his thoughts in the form of a treatise.
This penetrating, lively work was written in the form of a dialogue among
several characters, with The Doctor being the spokesman for the author's
own views. Later Smith was to repeat the dialogue form in his book, Dia-
logue on the Queen's Marriage (1561). The former work was not meant for
publication, Smith noting in the tract that 'it is dangerous to meddle in the
king's matters', as indeed it was.
Mercantilism and freedom in England from the Tudors to the Civil War 281

The basic thrust of the Discourse on the Commonwealth was an attack on

debasement, and its consequences in high prices, inflation and social unrest.
Debasement, and not the arbitrary decision of farmers or merchants, is re-
sponsible for higher prices. The principal losers from this policy are people
on fixed incomes. The Discourse was published after Sir Thomas's death by
his nephew William; included are later passages, interpolated by Thomas
during the 1570s, attributing the Elizabethan inflation of the later sixteenth
century to another factor: the influx of newly mined specie from the western
hemisphere. It is not known whether Smith was familiar with the similar
Navarrus analysis of 1556, or the Bodin analysis of French inflation 12 years
later, or whether this was Smith's independent discovery as price inflation
moved from Spain northwards into Europe.
In 1562, Smith returned to the debasement theme, in a lengthy work, still
unpublished, 'The Wages of a Roman Footsoldier, or A Treatise on the
Money of the Romans'. This treatise on Roman money and coinage was
written in answer to a question posed to him by his friend and colleague
Cecil, at this point Queen Elizabeth's principal secretary. Again, Smith re-
turns to his attack on debasement as evidence of 'the decay of the state' , and
as a cause of 'excessive prices'.
In both the Discourse and the 'Treatise' Smith took the convenient if
fallacious position that the king himself is the greatest loser from the high
prices caused by debasement. Since debasement adds to the king's revenue
immediately and before prices have had a chance to rise, the king, on the
contrary, is the prime beneficiary of debasement and other measures of mon-
etary inflation.
Smith's Discourse is strikingly modern in frankly grounding its social
analysis in the individual's drive for his own self-interest. Self-interest, Smith
declared, is 'a natural fact of human life to be channelled by constructive
policy rather than thwarted by repressive legislation'. Not that Smith aban-
dons nascent mercantilism for any sort of liberal or laissez-faire outlook.
Self-interest is not to be left alone within a property rights framework. It is to
be channelled and directed by government to a 'common goal' set by the
state. But at least Smith was wise enough to point out that it is better for men
to be 'provoked with lucre' towards proper goals than to have governments
'take this reward from them'. In short, government should work in tandem
with the powerful incentive provided by individual self-interest.
Smith sees that economic incentives are always at work in the market to
move economic resources out of less profitable, and into more profitable, uses.
And governments should work with such incentives, rather than against them.
Smith, however, was assuredly a mercantilist, as seen by his desire to
foster the manufacture of woollen cloth within England, and his desire to
prohibit the export of raw wool to be manufactured abroad.
282 Economic thought before Adam Smith

John Hales came from a prominent Kentish family, and was a friend and
fellow Tudor official of Smith. Yet his economic and social philosophy was
very different. In 1549, for example, the year that Smith's Discourse was
written (and which included an attack on new taxes on manufactured cloth)
Hales was the very person responsible for instituting the tax. Hales also
disliked two favourite themes of the Discourse: love for the civil law, and
admiration for sheep farming. Hales, furthermore, far from being indifferent
to religion, was a deacon and a dedicated organizer of Bible readings.
Most important in any contrast between Hales and the author of the Dis-
course, Hales attributed the high prices, not to debasement, but to three very
different supply-side factors: scarcity of cattle and poultry; speculation; and
excessively high taxes. None of these factors in truth can account for any
general price increase.
Finally, Hales took the old-fashioned moral position of attributing all ills,
including high prices, to man's all-pervasive greed. (Why greed should have
increased rapidly in recent years to account for high prices was of course a
problem that was not even addressed.) Greed and the desire for profit were the
great social evils. The only cure for all this, opined Hales, was to purge man of
self-love: 'To remove the self love that is in many men, to take away the
inordinate desire of riches wherewith many be cumbered, to expel and quench
the insatiable thirst of ungodly greediness, wherewith they be diseased ... ' and
to replace this 'diseased' self-love by a twin other-love of Church-and-state: 'to
make us know and remember that we all but members of one body
mystical of our Saviour Christ and of the body of the realm' .
Again, in his Defence, written the same year as the Discourse, John Hales
expressly denies that self-love can be in any sense the foundation of the
public good: 'It may not be lawful for everyman to use his own as he listeth,
but everyman must use that he hath to the most benefit of his country. There
must be something devised to quench the insatiable thirst of greediness of
men, covetousness must be weeded out by the roots, for it is the destruction
of all good things' .
Sir Thomas Smith was responsible, rather than his associate Sir Thomas
Gresham (c.1519-79), for the first expression of 'Gresham's law' in England.
Until recently, it had been thought that the well-known and anonymous
Memorandum for the Understanding of the Exchange had been submitted by
Gresham to Queen Elizabeth early in her reign in 1559. It now turns out,
however, that the Memorandum was written by Smith early in Queen Mary's
reign, in 1554. The Memorandum was certainly not a free market tract,
advocating as it did various state controls over the foreign exchange market.
It did, however, not only denounce debasement and call for a high-valued
currency, but it also enunciated 'Gresham's law' that the cause of a shortage
of gold coin in England was the legal undervaluation of gold.
Mercantilism and freedom in England from the Tudors to the Civil War 283

Gresham, fiscal agent of the Crown in Antwerp, himself adhered to

'Gresham's law', which was set forth by the royal commission of 1560 that
he heavily influenced. Gresham was also a full-fledged statist and architect of
Tudor monopoly privilege. A member of the monopoly wool cloth export
company, the Merchant Adventurers, Gresham was the chief architect of
England's tightening of that monopoly during the 1550s and 1560s: banning
Hanseatic merchants from exporting English cloth, increasing tariffs on for-
eign cloth and, finally, making the Adventurers far more oligarchic and
tightly controlled from the top.
Influenced greatly by the Memorandum, and echoing its Gresham's law
position, was the younger Sir Richard Martin (1534-1617), goldsmith, warden
and master of the Mint during all of Queen Elizabeth's reign. Trained as a
goldsmith from youth, Martin also served as prime warden of the Worshipful
Company of Goldsmiths, alderman of London for many years and was twice
Lord Mayor. In the royal commission of 1576 on currency and the exchanges,
whose members were hand-picked by Sir Thomas Smith, then principal secre-
tary to the queen, Gresham and Martin, as well as Cecil, were all included. The
commission did not include Smith himself, who had fallen ill. Their backing of
Gresham's law was echoed a generation later by the royal commission of 1600,
on which Martin served, and prepared the principal memoranda.

10.3 The 'economic liberalism' of Sir Edward Coke

It used to be held that the famous 'anti-monopoly' common law decisions of
Chief Justice Sir Edward Coke (1552-1634), the eminent early seventeenth
century jurist, were an expression of the alleged commitment of a rising class
of puritan merchants to economic liberalism and laissez-faire. A particularly
prominent advocate of this thesis is the prolific English Marxist historian,
Christopher Hill, who needs this view to fit into the Marxian schema of the
English Civil War.
It turns out, however, that there are many grave flaws in this thesis. Coke
himself was a moderate Anglican, and not particularly concerned with reli-
gious issues. He was also not in any sense a merchant or a spokesman for
merchants; he was a country gentleman from Norfolk who successively
married two heiresses, and spent most of his career as a government lawyer,
successively attorney-general and chief justice. Also, Coke showed no inter-
est whatever in the new juristic concerns of merchants: such new branches of
the law as joint-stock ownership, insurance bankruptcy, negotiable instru-
ments and commercial contracts.
More important, Coke never displayed any sympathy for laissez-faire. As
an MP, Coke supported many mercantilist measures. Furthermore, he had
imbibed from his close associate, William Cecil, Lord Burghley, an admira-
tion for the elaborate Tudor structure of state controls. His approach to
284 Economic thought before Adam Smith

foreign trade was profoundly mercantilist. Thus, in the 1621 session of Par-
liament, after he had broken with the Crown, Coke deplored the economic
effects of the alleged scarcity of coin. He attacked the unfavourable balance
of trade, deplored the fact that the East India Company was allowed to export
bullion, and attacked the import trade with France as introducing into Eng-
land immoral luxury items, such as 'wines and lace, and such like trifles'.
Coke also called for outlawing the importation of tobacco from Spain.
Coke also tried his best to cripple the new practice of exporting unfinished
cloth to the Continent and then re-importing the finished cloth. He consist-
ently advocated prohibiting the importation of foreign cloths, as well as the
export of unfinished cloth, and also tried to outlaw the export of raw wool to
be used by foreign manufactures.
In general, Sir Edward Coke had no quarrel with government regulation
and control of trade, or with the creation of monopolies; what he objected to
was the king doing the regulating or monopolizing, rather than Parliament.
Coke favoured the detailed regulation and cartellization of industry, the wage
controls, and compulsory employment, imposed by the Statute of Artificers
of 1563. He supported the laws against 'forestalling and engrossing' which,
under the guise of attacks on monopoly and high prices, were actually price-
raising and cartellizing devices prohibiting speculation in food products and
prohibiting sales outside officially designated local 'markets'. Laws against
forestalling were lobbied for by privileged owners of local markets trying to
exclude competitors and to raise their own prices.
Most important, Coke's well-known opposition to government-granted mo-
nopolies was merely an opposition to grants by the king rather than to grants by
parliament. Thus, in the famous Statute of Monopolies, passed in 1623 and
drafted largely by Coke, Parliament abolished royal grants of monopoly privi-
lege, but explicitly reserved to itself the right to grant such privileges, which it
soon proceeded to do. The statute also specifically exempted from abolition
large categories of royal monopoly, including such industries as printing, gun-
powder and saltpetre, the rights of 'corporations' such as London to prevent
non-Londoners from engaging in trade within the city limits, or monopoly
corporations engaged in foreign trade. Furthermore, Coke personally favoured
the monopoly Russia, Virginia, and East India Companies.
Coke's legaI-economic philosophy might be summed up in a phrase he
used in Parliament, in 1621: 'That no Commodity can be banished, but by
Act of Parliament' .5

10.4 The 'bullionist' attack on foreign exchange, and on the East India
Having survived the assaults of ignorant moralists before the Reformation,
the foreign exchange market was subjected, during the far more secular age
Mercantilism andfreedom in England from the Tudors to the Civil War 285

of the late sixteenth century onwards, to the assaults of regulators on behalf

of the nation-state. Writers who have been misnamed 'bullionists' adopted
the ignorant view that an outflow of gold or silver bullion abroad was iniqui-
tous, and that this calamity was brought about by the machinations of evil
foreign exchange dealers, who deliberately sought gain by depreciating he
value of the nation's currency. Nowhere was there any insight that the out-
flow of bullion might have been performing an economic function, or was the
result of underlying supply and demand forces. Despite their insights into
Gresham's law and debasement, Thomas Smith and Gresham would have to
be placed in the 'bullionist' category. The policy conclusion of the bullionists
was all too simple: the state should outlaw the export of bullion and should
severely regulate or even nationalize the foreign exchange market.
The exchange dealers battled back, with sensible and powerful arguments.
Thus in 1576 they argued, in a 'Protest against the State Control of Exchange
Business', that state intervention would cause a drying up of commerce. On
the low value of the English pound, they replied that 'we can say nothing but
that our exchanges are made with a mutual consent between merchant and
merchant, and that abundance of the deliveries or of the takers make the
exchange rise and fall' .
One prominent bullionist of the early seventeenth century was Thomas
Milles (c.1550-c.1627). In a series of tracts from 1601 to 1611, Milles
advances the old bullionist position. Foreign exchange transactions, Milles
opined, were evil; they were institutions with which private merchants and
bankers, 'covetous persons (whose end is private gain)', rule in the place of
kings. Something new, however, had been added. For the powerful East India
Company had been chartered in 1600, to monopolize all trade with the Far
East and the Indies. The East India trade was unique in that Europeans
purchased a great deal of valuable muslins and spices, but the Indies in turn
bought very little from Europe except gold and silver. European nations,
therefore, had an 'unfavourable balance of trade' with the Far East, and the
India trade therefore quickly became a favourite target for mercantilist writ-
ers. Not only were goods being imported from the East as against few
exports, but specie, bullion, seemed to flow eternally eastwards. Milles there-
fore took up the bullionist cudgels by calling for restriction or prohibition of
the Indies trade, and attacking the activities of the East India Company.
Milles was also eager to intensify regulations against the Merchant Adven-
turers, the governmentally privileged monopoly for the export of woollen
cloth to the Netherlands. Instead, he craved a return to the old privileged raw
wool export monopoly of the Merchant Staple. In fact, Milles went so far as
to call the old regulated Staple trade the 'first step towards heaven' .
It is certainly likely that Milles's eagerness to regulate and prohibit foreign
trade and bullion flows was connected with his own occupation as customs
286 Economic thought before Adam Smith

official. The more regulation, the more work and power for Thomas MiIIes.
Stung to the quick, the secretary of the Merchant Adventurers, John Wheeler
(c.1553-1611) replied to Milles's charges in his Treatise of Commerce, in
1601. Wheeler upheld the 'orderly competition' of the 3500 merchant mem-
bers joined together in the privileged monopoly, as against the unorganized,
dispersed, 'straggling and promiscuous trade' of free competition. He also
engaged in semantic trickery by asserting that monopoly by definition means
only 'single seller'; hundreds of merchants linked together into a privileged
export company were able, after all, to act virtually as one privileged firm. In
Wheeler's own words, these merchants were 'united and held together by
their good government and by their politic and merchantilike orders' - backed
up, we must not forget, by the armed might of the state. Sneering at the idea
of free competition, Wheeler smugly opined that any merchant who loses a
little liberty will be better off 'being restrained .. .in that estate, than if he
were left to his own greedy appetite'. When John Kayll, over a decade later
in The Trades Increase (1615), protested that the monopoly of the Merchant
Adventurers would 'unjustly keep others out forever', his pamphlet was
suppressed by the archbishop of Canterbury and he earned a stint in jail for
his pains. 6
Later, in the 1650s, Thomas Violet had a Milles-type motive for special
pleading in his call for prohibition of the export of bullion. Violet had been a
professional 'searcher' and government informer seeking out violations of
the law prohibiting the export of bullion. Now, in A True discoverie to the
commons of England (1651), he sought to reinstate that good old law, and he
accompanied his call for reinstatement of bullion prohibition with a request
that he himself be employed once again to seek out violators. To the embar-
rassing fact that he, Violet, had himself been convicted and punished for
violating these very provisions, he countered with a ready quip, 'an old deer-
stealer is the best keeper of a park' .
The most distinguished bullionist of the early seventeenth century was
Gerard de Malynes (d.1641). Malynes was a Fleming born in Antwerp to the
prominent van Mechelen family, probably changing his name to Malynes
when he emigrated to London in the 1580s (perhaps in response to the
Spanish persecution of Protestants in the Netherlands in that era). Malynes
was listed as an alien in the records of that period, and as a member of the
'Dutch' Protestant Church. He is also depicted in the records as a 'merchant
stranger' , that is, as a merchant from abroad.
Malynes turned out be a speculator and an unscrupulous, even crooked,
businessman, embezzling money from his Dutch business associates. He was
often on the verge of bankruptcy, and his partner and father-in-law, the
Antwerp-born Willem Vermuyden, died in debtors' prison. Malynes, none-
theless, was a linguist, and highly educated scholar, deeply interested in
Mercantilism andfreedom in England from the Tudors to the Civil War 287

literature, the Latin language, mathematics and classical Greek philosophy.

He was also well versed in scholastic doctrine.
A member of a royal commission of 1600 to study economic problems,
Malynes began his bullionist writings in 1601, in particular A Treatise on the
Canker of England's Commonwealth, and published many tracts on into the
1620s. Like Gresham and the sixteenth century bullionists, Malynes fulmi-
nated against the foreign exchange dealers, asserting superficially and incor-
rectly that exchange rates were set by wilful conspiracies of exchange deal-
ers. Malynes was more rigorous than previous bullionists; instead of institu-
tions to control exchange dealings, he advocated a government 'bank' which
would enjoy a monopoly on all foreign exchange transactions.
Intertwined with his star-crossed business career was Malynes's service in
government, becoming at various times a top bureaucrat at the Royal Mint
and a financial adviser to the Crown. Malynes also had a personal stake in the
revival of rigorous exchange control, for he himself eagerly anticipated fill-
ing the resurrected post of royal exchanger. To Malynes, there was a 'just'
exchange rate at the legal par, and the government's task was to enforce it.
In an earlier tract in 1601, Saint George for England Allegorically De-
scribed, Malynes, harking back to an old theme, denounced foreign exchange
dealings as 'usury', and expressed the hope that by tight control this usury
could die a gradual death.
To advocate rigorous exchange control, Malynes of course had to deny that
the foreign exchange market could in any way equilibrate or regulate itself,
or that exchange rates were set by supply and demand forces. To Malynes
goes the dubious credit for the emergence of the spurious and pernicious
'terms-of-trade' fallacy. This doctrine argues that a balance of trade deficit
and export of bullion will not regulate itself. For higher foreign exchange
rates and cheaper domestic currency, will not, as one might believe, spur
exports and retard imports. Instead, the 'unfavourable' terms of trade of, say,
the pound in terms of foreign currency will lead to even more imports and
fewer exports, thus dri ving more bullion out of the country. Even if a cheaper
pound will bring in less foreign exchange revenue (a highly unlikely event
seen more often in armchair speculation than in practice), one wonders where
the English would continue to find either foreign currency or specie to pay
for the higher-priced foreign products. Surely the specie would eventually
run out, and for that reason alone, some market mechanism would have to
come into play to restrict foreign imports or the export of specie.
Thus Malynes managed to take the absurd position that, whatever happens
in the foreign exchange market, specie will keep flowing out of England.
Flowing out if the pound should be expensive, since this will restrict exports
and encourage imports (a correct insight), but also flowing out if the reverse
happens, because of the "terms-of-trade' argument. The specie outflow was
288 Economic thought before Adam Smith

therefore blamed on the metaphysical malevolence of the exchange dealers,

and it could only be cured by severe government control, including prohibi-
tion of the export of bullion. Malynes also advocated control of the exchange
rate at the legal mint par, which would mean in the context of the time a
substantial appreciation, or higher value, of the pound sterling. Yet, continu-
ing in the faulty terms-of-trade mode, Malynes saw no problem of specie
outflow from such a marked appreciation of the currency. In fact, he hailed
the higher domestic prices that would supposedly draw more specie into the
In a similar bizarre twist, Malynes, correctly noting that the inflationary
influx of specie from the New World had hit the other countries of Western
Europe before coming into England, yet concluded that this was a terrible
event for England. For instead of realizing that lower prices made English
goods more competitive abroad, Malynes concluded that these 'unfavourable
terms of trade' put England into a poor competitive position and led to a
permanent outflow of specie.
In view of his record in propounding tissues of egregious fallacies, it is
curious that Malynes has had a good press among historians of economic
thought, even among those who disagree with his basic outlook. They seem
to laud him for recognizing that prices vary directly with the quantity of
money, so that a country losing gold will find its prices falling, whereas a
country accumulating gold will see its prices rise. But Malynes, eager to
indict the workings of international prices and exchanges rather than explain
how they work, was scarcely willing to develop the full implication of his
occasional insights. Furthermore, considering that this 'quantity theory' had
long been known, and developed and integrated for centuries, by the Spanish
scholastics, Bodin, and others, Malynes's achievements seem dubious at best.

10.5 The East India apologists strike back

England suffered a severe recession in the early 1620s, and Gerard Malynes
returned to the attack, publishing a series of tracts repeating his well-known
views, and calling for stringent measures to curb the Merchant Adventurers
and especially the East India Company, as well as any other traders who
dared to export bullion from the kingdom. His influence was bolstered by
having been a member of the royal commission on the exchanges in 1621.
Taking up the torch in defence of the Merchant Adventurers was one of its
members, Edward Misselden (d. 1654). In a tract entitled Free Trade or the
Means to Make Trade Flourish (1622), following service on a Privy Council
committee of inquiry on the depression of trade, Misselden advanced some-
what beyond Malynes's analysis. He acknowledged that bullion was exported
from England, not due to the machinations of wicked exchange dealers, but
from imports exceeding exports, from what would later be called an 'unfa-
Mercantilism andfreedoln in England from the Tudors to the Civil War 289

vourable balance of trade'. Misselden, then, was not concerned with regulat-
ing the exchanges. But he did want the state to force a favourable balance
into being by subsidizing exports, restricting or prohibiting imports, and
cracking down on the export of bullion. In short, he called for the usual set of
mercantilist measures. Misselden was largely concerned to defend his Mer-
chant Adventurers. Like Wheeler a generation earlier, he maintained that his
company was not at all a monopolist, but simply the organization of orderly
and structured competition. Besides, wrote Misselden, his Merchant Adven-
turers exported cloth to Europe and therefore fitted in with the interests of
England. The truly evil firm was the privileged East India Company, which
had a decidedly unfavourable balance of trade of its own with the Indies, and
which continually exported bullion abroad.
Misselden now entered into a series of angry pamphlet debates with
Malynes, who replied in the same year with The Maintenance of Free Trade.
(Neither party, of course, had the slightest interest in what would now be
called 'free trade'.) In 1623, Misselden accepted a post as deputy governor of
the Merchant Adventurers in Holland, perhaps as a reward for his stirring
defence of the company in the public prints. But, in addition, the East India
Company, seeing in Misselden an effective champion and a troublesome foe,
made him a member and one of their commissioners in Holland during the
same year. As a result, when his second pamphlet, The Circle of Commerce,
was published in 1623, Misselden displayed a miraculous change of heart.
For the East India Company had been suddenly transformed from villain to
hero. Misselden, quite sensibly, now pointed out that while the East India
Company did export specie in exchange for products from the Indies, it can
and does re-export these goods in exchange for specie.
The outstanding defender of the East India Company in the early seven-
teenth century was one of its prominent directors, Sir Thomas Mun (1571-
1641). Mun was early engaged as a merchant in the Mediterranean trade,
especially with Italy and the Middle East. In 1615, Mun was elected a
director of the East India Company, and after that he 'spent his life in actively
promoting its interests'. He entered the lists on behalf of the company in
1621, with his tract, A Discourse of Trade from England unto the East-Indies.
The following year he and Misselden were both members of the Privy Coun-
cil committee of inquiry. Mun's second and major work, England's Treasure
by Forraign Trade, or the Balance of Forraign Trade is the Rule of our
Treasure, taking a broader view of the economy, was written about 1630 and
published posthumously by Mun's son John in 1664. When published, it
carried the stamp of approval of Henry Bennett, secretary of state in the
Restoration government, and also an architect of England's mercantilist policy
against the Dutch. The pamphlet was highly influential and was reprinted in
several editions, the last being published in 1986.
290 Economic thought before Adam Smith

Thomas Mun set forth what would become the standard mercantilist line.
He pointed out that there was nothing particularly evil about the East India
Company trade. The company imported valuable drugs, spices, dyes and
cloth from the Indies, and it re-exported most of these products to other
countries. Overall, in fact, the company has actually imported more specie
than it has exported. In any case, the focus of English policy should not be on
the specific trade of one company or with one country, but on the overall or
general balance of trade. There it must make sure that the country exports
more than it purchases from abroad, thereby also increasing the wealth of the
nation. As Mun succinctly put it at the beginning of England's Treasure: 'The
ordinary means to increase our wealth and treasure is by foreign trade,
wherein we must ever observe this rule: to sell more to strangers yearly than
we consume of theirs in value'. To that end, Mun advocated sumptuary laws
banning consumption of imported goods, protective tariffs, and subsidies and
directives to consume domestic manufactures. Mun, on the other hand, op-
posed any direct restrictions on the export of bullion, such as conducted by
the East India Company.
Mun was wise enough in combating the fallacies of Malynes and Misselden.
Against Malynes, he pointed out that the movements of the exchange rate
reflect, not the manipulations of bankers and dealers, but the supply and
demand of currencies: 'That which causes an under or overvaluing of monies
by exchange is the plenty or scarcity thereof'. Misselden had advocated
debasement of the currency as a means of increasing the price level. Such
increase, Misselden had argued in pre-Keynesian fashion, 'will be abun-
dantly recompensed unto all in the plenty of money, and quickening of trade,
in every man's hand'. As a leader of the Merchant Adventurers, Misselden
was undoubtedly highly interested in the spur that debasement would give to
exports. But Mun denounced debasement, first, as bringing confusion by
changing the measure of value, and second by increasing prices all around:
'If the common measure be changed, our lands, leases, wares both foreign
and domestic, must alter in proportion' .
Neither did Mun bend his energies towards an export surplus because he
was enamoured of the idea of accumulating specie in England. Adhering to
the quantity theory of money, Mun realized that such accumulation would
simply drive prices up, which would not only be to no avail but would
discourage exports. Mun wanted to accumulate specie not for its own sake,
nor to drive up prices at home, but to 'drive trade', to increase foreign trade
still further. An expansion of foreign trade per se seems to be Thomas Mun's
main objective. And this overriding goal is not very puzzling from a leader of
the great East India Company.
Furthermore, foreign trade, for Thomas Mun fully as much as for Montaigne,
increased the national power - as well as the power of English traders - at the
Mercantilism and freedom in England from the Tudors to the Civil War 291

expense of other nations. England and her inhabitants only wax great at the
expense of foreigners. As Mun put it succinctly, in trade 'one man's necessity
becomes another man's opportunity', and 'one man's loss is another man's
gain'. In an odd prefigurement of the Keynesian view that national debt held
at home is immaterial because 'we only owe it to ourselves', Mun and his
fellow mercantilists considered internal trade unimportant because there we
only transfer wealth among ourselves. The export balance in foreign trade
then becomes of crucial importance, so that the export merchant becomes by
far the most productive occupation in the economy.
That Mun was far from being a primitive inflationist is seen by the scorn
he properly and contemptuously heaped upon the common plea - and favour-
ite mercantilist complaint - that business and the economy were suffering
from a 'scarcity of money'. (The conclusion invariably drawn from such
analysis is that the government was duty-bound to do something quickly to
augment the money stock.) Mun wittily riposted in his Discourse of Trade:

concerning the evil or want of silver, I think it hath been, and is a general disease
of all nations, and so will continue until the end of the world; for poor and rich
complain they never have enough; but it seems that the malady is grown mortal
here with us, and therefore it cries out for remedy. Well, I hope it is but imagina-
tion maketh us sick, when all our parts be sound and strong ...

Thomas Mun may have been the most prominent and sophisticated of the
early seventeenth century mercantilists in England. Yet, as Schumpeter points
out, these were all pamphleteers not particularly interested in analysis of the
economy, special pleaders rather than aspiring scientists. 7
Perhaps the best economic analyst of all in this period was Rice Vaughn,
whose A Discourse of Coin and Coinage, though published in 1675, was
written in the mid-1620s. Vaughn, in the first place, held that the disappear-
ance of silver during this period was the effect of what we now call 'Gresham's
law': the bimetallic undervaluation by the English government of silver as
against gold. Since silver, rather than gold, was the money for most transac-
tions, this undervaluation had a certain deflationary effect. In the course of
his tract, Vaughn pointed out that an export surplus will not have the desired
effect of bringing precious metals into the kingdom, if the value of the gold
or silver pound in England is low in terms of purchasing power; for then
goods will be imported instead of the monetary metals, and the export sur-
plus will disappear. 8 Vaughn was also astute enough to recognize that prices
do not all move together when the value of money changes: for example, that
domestic prices usually lag behind the debasement or devaluation of money
Most importantly, Rice Vaughn, remarkably, harked back to the scholastic
continental subjective utility and scarcity tradition in the determination of the
292 Economic thought before Adam Smith

values and prices of goods. Vaughn concisely pointed out that the value of a
good is dependent on its subjective utility and hence demand by consumers
('Use and delight, or the opinion of them, are the true causes why all things
have a Value and Price set upon them'), while the actual price is determined
by the interaction of this subjective utility with the relative scarcity of the
good ('the proportion of that value and price is wholly governed by rarity and
abundance'). 9

10.6 Prophet of 'empiricism': Sir Francis Bacon

The status and reputation of Sir Francis Bacon (1561-1626) is one of the
great puzzles in the history of social thought. On the one hand, Bacon was
universally hailed as the greatest man of his age. Over a century later, in the
great manifesto of the French Enlightenment, the Encyclopedie, Bacon was
hailed extravagantly as 'the greatest, the most universal, and the most elo-
quent of philosophers'. Yet what had he actually accomplished to warrant all
the accolades?
This prolific statesman and writer, with great fanfare and self-advertise-
ment, in a series of books from the 1600s to the 1620s, set forth a series of
injunctions about the proper method of scientific inquiry into the world,
including social as well as natural sciences. Essentially, Bacon wrote numer-
ous exhortations to everyone else to engage in detailed factual investigation
into all life, all the world, all human history. Francis Bacon was the prophet
of primitive and naive empiricism, the guru of fact-grubbing. Look at 'the
facts', all 'the facts', long enough, he opined, and knowledge, including
theoretical knowledge, will rise phoenix-like, self-supporting and self-sus-
tained, out of the mountainous heap of data.
Although he talked impressively about surveying in detail all the facts of
human knowledge, Bacon himself never came close to fulfilling this mon-
strous task. Essentially, he was the meta-empiricist, the head coach and
cheerleader of fact-grubbing, exhorting other people to gather all the facts
and castigating any alternative method of knowledge. He claimed to have
invented a new logic, the only correct form of material knowledge - 'induc-
tion' - by which enormous masses of details could somehow form them-
selves into general truths.
This sort of 'accomplishment' is dubious at best. Not only was it a
prolegomenon to knowledge rather than knowledge itself; it was completely
wrong about how science has ever done its work. No scientific truths are ever
discovered by inchoate fact-digging. The scientist must first have framed
hypotheses; in short, the scientist, before gathering and collating facts, must
have a pretty good idea of what to look for, and why. Once in a while, social
scientists get misled by Baconian notions into thinking that their knowledge
is 'purely factual', without presuppositions and therefore 'scientific', when
Mercantilism and freedom in England from the Tudors to the Civil War 293

what this really means is that their presuppositions and assumptions remain
hidden from view.
The mystery, then, is why Sir Francis Bacon's dubious achievement gar-
nered so much praise. One reason is that he succeeded in capturing the
Zeitgeist: he was the right man for his notions at the right time. For Bacon
came after two centuries of sniping at scholasticism, which was now ripe for
an open and all-out assault. Echoing many other thinkers of past generations
but putting it squarely and bluntly, Bacon divided all knowledge into two
parts, divine and natural. Man's knowledge of supernatural and spiritual
matters came from di vine revelation, and that was that. On the other hand,
knowledge of material affairs, man and the world around him, was wholly
empirical, inductive, arrived at through the senses. In neither case was there
any room for human reason, that great conduit of knowledge lauded by
classical philosophy from the Greeks to the scholastics. Knowledge of spir-
itual and divine matters was purely fideistic, the product of faith in divine
revelation. Earthly knowledge was purely sensate and empirical; there was
no room for reason there either.
In ethical and political philosophy, then, Bacon found no room for the
classical doctrine that human reason supplies knowledge of ethics through
investigation of natural law. Instead, ethical knowledge is purely relative, the
tentative accumulation of mounds of unsifted historical data. And if there is
no rational knowledge of ethics or natural law, then there are no natural rights
limits to be placed on the power and actions of the state. Curiously enough,
Bacon had the best of both worlds by proclaiming that endless arrays of facts
were not just the only conduit to knowledge, but that they would enable man
to arrive at an ethics that would improve his life. The ultimate purpose of
engaging in all the fact-grubbing was utilitarian. Yet how he expected valid
ethical laws to emerge out of all this busy empiricism was left unexplained.
Recent research, however, has cleared up some of the lacunae in Bacon's
methodological position. For it turns out that much of Bacon's vaunted 'em-
piricism' was not just ordinary science, but the allegedly empirical mystical
mumbo-jumbo that various renaissance thinkers had cobbled out of the 'An-
cient Wisdom'. Renaissance mysticism was a pseudo-science that combined
the occult and magic traditions of the hermetic literature, with that of a Chris-
tianized version of the Jewish Cabala. A year after Bacon died, his proposed
despotic utopia, the New Atlantis (1627) was published. In the renaissance
mystic tradition, Bacon proposed a utopia ruled by enlightened despots, in
which all men are happy and content. Happiness was achieved because Adam's
sin was not, as in the standard Christian tradition, trying to know too much and
to become in some sense divine. On the contrary, the mystical hermetic view
held that Adam's sin was turning his back on the Ancient Wisdom that could
have been revealed to him. In contrast, man will now be made happy because
294 Economic thought before Adam Smith

wise rulers, possessed of this divine knowledge, will guide man to perfection
and happiness by fulfilling his true God-like nature. In Bacon's utopian novel,
the symbols he used heavily - such as the 'rose' or 'rosy' cross - reveal
Bacon's closeness to the newly founded and mysterious Rosicrucian Order,
which added to the rest of the Ancient Wisdom the pseudo-science of alchemy,
in which man becomes as God in helping to create the universe. to
The arrogant Baconian claim to be the prophet of the only true scientific
method takes on a high irony when we realize that Francis Bacon's vision of
science was close to that of the magic-oriented occultists of the Rosicrucian
Order. And since renaissance occult 'knowledge' was definitely part of the
new spirit of the age, and later even of the allegedly 'rational' Enlightenment
as well, Francis Bacon may be considered far closer to the Zeitgeist of his
day than current Baconians would care to acknowledge.
Francis Bacon was also in tune with the Zeitgeist in another way. The
simple-minded proclamation of the absolute power and glory of the English
king was no longer as tenable as it had appeared to the Anglican theorists of
the sixteenth or even to Bacon's absolutist contemporaries of the early seven-
teenth century. The naive argument by 'correspondence' - the analogies to
the lordship of God, the head on a single man's body, and to the king as head
of the great body politic - was no longer being accepted as self-evident truth.
The new discoveries, and the expansion of the economy and of the nations of
Europe into new worlds, made the older view that any change wrought by
human beings merely corrupted God's static order of nature increasingly
untenable. The idea that every man and group was born into a divinely
ordained fixed order and station in life was rebutted by the increasing mobil-
ity and social and economic progress of the western world. And so the old
admixture of the material and the divine into one heady brew of unquestioned
absolutism could no longer command respect. A new fallback position for the
state and the monarch was necessary, one more in tune with the new fashion
of 'science' and scientific advance.
And so the 'scientific realism' of Sir Francis Bacon was perfectly suited to
the new task. The idea that the king was quasi-divine or received an absolute
divine imprimatur would no longer do. Sir Francis Bacon in the service of the
state was far more the 'realistic political scientist' heralded by Machiavelli.
Indeed, Bacon consciously modelled himself on Machiavelli's teachings.
Like the neo-pagan Machiavelli, Bacon called upon his prince to do great
deeds, to achieve glory. He particularly called upon the king to achieve
empire, to expand and to conquer territories overseas. Domestically, Bacon
was what might be called a moderate absolutist. The king's prerogative was
still dominant, but this should be within the ancient historical constitution,
and should follow the law, and there should be at least discussions and
debates in the courts and in Parliament about royal decrees.
Mercantilism andfreedom in Englandfrom the Tudors to the Civil War 295

Bacon went beyond most other apologists of empire by declaring it a high

moral duty of the king to expand, as well as preserve, the 'bonds of empire'.
The duty to conquer went even beyond Machiavelli, who worried about
undue speed in achieving conquest. To stand ready to serve the high duty of
expanding empire, the British nation had to be trained in the study of arms
and particularly in naval prowess, and had to display the virtue of fortitude,
to be 'stout and warlike'.
This brings us to the last and not the least of the reasons for Bacon's
enormous influence beyond the merits of his achievements. For Sir Francis
Bacon, Baron Verulam, 1Viscount St Albans, was one of the leading politi-
cians and members of the power elite in Great Britain. He was, first, the
youngest son of Sir Nicholas Bacon (1509-79), a close friend and brother-in-
law of Sir William Cecil, Lord Burghley, a leading aide to Queen Elizabeth.
As a result, Nicholas Bacon became Privy Councillor, Lord Chancellor, and
the Lord Keeper of the Great Seal.
Francis Bacon was, therefore, born with a silver spoon. As a young attor-
ney, Bacon became an MP and, in 1591, a confidential adviser to the earl of
Essex, favourite of the queen. As Essex began to lose favour with the queen,
the ever alert Bacon sensed the shift in the wind and turned against his old
patron, taking the lead in the condemnation that led to Essex's execution. To
explain this sordid affair, Bacon was assigned by the queen to write what
became the official public denunciation of Essex. Later, to quiet a festering
canker of criticism, Bacon was moved to write an Ap